Australia’s central bank says interest rates too low after hikes

by | Jul 18, 2022 | World

Reserve Bank of Australia suggests benchmark rate still too low as unemployment dips to lowest level in nearly 50 years.Australia’s central bank has signalled the need for higher interest rates to tame rising inflation, despite recent rate hikes, as unemployment drops to its lowest level in nearly 50 years.
The Reserve Bank of Australia (RBA) sees the current benchmark rate of 1.35 percent as being “well below” the so-called neutral rate that is neither expansionary nor contractionary, according to minutes of its July policy meeting released on Tuesday.
“The level of interest rates was still very low for an economy with a tight labour market and facing a period of higher inflation,” the RBA minutes said.
“Members viewed it as important that inflation expectations remained well anchored and that the period of higher inflation be temporary.”
The central bank raised the benchmark rate by half a percentage point at its July 5 meeting, the third hike in as many months.
RBA Governor Philip Lowe has often suggested the neutral rate lies at about 2.5 percent.
The RBA minutes, however, show that policymakers are concerned the neutral rate could rise higher if households and businesses expect higher inflation.
Following the policy meeting, unemployment fell sharply in June to a 48-year low of 3.5 percent as hiring exceeded expectations.
With Australia at practically full employment, some market watchers expect the RBA to raise the …

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