Australia’s central bank raised interest rates for the first time in more than a decade on Tuesday, a pre-election hike designed to curb soaring consumer prices.
Ending record-low rates, the bank cited inflation levels that had “picked up more quickly, and to a higher level, than was expected”.
The move thrusts the bank to the center of a fierce political debate about the health of Australia’s economy just weeks before the May 21 elections.
The opposition Labor party has seized on the prospect of a rate rise as evidence of a weakening economy and the conservative government’s economic maladministration.
Prime Minister Scott Morrison, who is trailing in the polls, has insisted inflation is a result of worldwide trends, including the war in Ukraine.
The annual inflation rate is currently at 5.1 percent.
Like consumers around the world, Australians have been hit by soaring prices for food and fuels.
But house prices have been rising for years even as wages have stagnated. Sydney and Melbourne are among the world’s most expensive cities in the world to live.
The rate rise is expected to be the first of several, which could have serious implications for Australia’s once-perennially growing economy.
Higher interest rates will spell higher borrowing costs for millions of already heavily indebted Australians, in a country where real estate market speculation at times appears to be a national pastime.
Interest rates of two percent would cost the average homeowner about US$362 a month, according to financial services website RateCity.com.au.
“That’s going to be a lot for many borrowers to swallow, particularly anyone already struggling to make the monthly budget add up,” said RateCity’s Sally Tindall.
Australia’s vast resource wealth has for decades provided insulation from global financial headwinds and underpinned high standards of living.
The country is among the world’s largest producers and exporters of iron ore, gas and coal.
But there are growing concerns that the “lucky country’s” run of good fortune may be coming to an end.
In early 2020 the economy fell into recession for the first time in almost three decades, largely because of devastating bushfires and the start of the Covid-19 pandemic.
Climate-fueled floods, bushfires and droughts are proving increasingly costly.
This year’s east coast floods cost an estimated Aus$3.35 billion (US$2.4 billion) in insured losses, making it the costliest flood in Australia’s history, according to the Insurance Council of Australia.
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