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Bank of Australia Raises Interest Rates by 0.5%, Signaling Further Hikes

The Reserve Bank of Australia (RBA) raised its key interest rate by 0.50% to 0.85%, thus exceeding market expectations. They were expecting a rate hike of 0.25% or 0.40%. The action indicates that tightening monetary policy is still necessary to contain the current surge in inflation.

The RBA said after the meeting that given the high inflationary pressures and the current low interest rate, the RBA board decided to raise interest rates by another 0.50% at today’s meeting.

On May 3, the RBA raised its policy rate by 0.25% to 0.35%, the first rate hike in 12 years.

The unexpectedly large May 3 rate hike came after the Australian Bureau of Statistics reported that the consumer price index (CPI) rose to 5.1% in the first quarter, its highest level in 20 years.

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