Australia's cash rate hits 2.35 pct after 5 consecutive hikes

SYDNEY, Sept. 6 (Xinhua) -- The Reserve Bank of Australia (RBA) on Tuesday announced a rate hike for the 5th consecutive month, lifting its cash rate target by 50 basis points to a record high of 2.35 percent since 2015.

"The Board is committed to returning inflation to the 2-3 percent range over time. It is seeking to do this while keeping the economy on an even keel," Governor Philip Lowe said in a statement on the monetary policy decision.

Noting that inflation in Australia is at its highest level since the early 1990s and expected to increase further, the governor said more rate increases are possible to follow over the months ahead, but the situation is "not on a preset path."

According to the Australian Bureau of Statistics, the consumer price index (CPI) rose by 1.8 percent in the June quarter, with the annual inflation rate increasing to 6.1 percent.

According to the new forecast of RBA, the CPI sits around 7.75 percent over this year, a little above 4 percent over 2023 and around 3 percent over 2024.

Mark Humphery-Jenner, associate professor of finance at the University of New South Wales, told Xinhua that the main issues driving this inflation are severalfold, including ongoing supply-chain disruptions, soaring energy prices and a tight labor market domestically.

"Increasing rates will help to reduce inflation. However, it comes with risks," the expert warned, adding that for companies, it lifts the cost of borrowing and deter investment, while for customers, rate hikes reduce the demand for new home construction, debt-driven purchases and also disposable income.

As the inflation-related costs, ranging from grocery spending to a looming increase in petrol prices, are already squeezing the country, Humphery-Jenner expressed his concern that Australians will yet again get hurt after the new rise.

"A 50 bps hike on a million dollar mortgage translates into another 416 dollars of interest per month. At a cash rate of 2.35 percent, we would have seen rates rise 2.25 percent in 2022," he said. "This is another 1,875 dollars of interest per month on a million dollar mortgage, approximately."

Looking ahead, Humphery-Jenner noted that most predictions have the terminal rate sitting between 2.6 percent and 2.85 percent.

"The RBA will likely slow rates hikes going forward both to give rate increases time to work and to avoid the risk of significant economic damage," he said.