Australia’s central bank on Tuesday lifted its benchmark interest rate for a third time in consecutive months, changing the cash rate to 1.35% from 0.85%.
The Reserve Bank of Australia’s half a percentage point rise was the same size as its June increase.
When the bank lifted the rate by a quarter percentage point at its monthly board meeting in May, it was the first rate hike in more than 11 years.
Increases at the June and July board meetings were widely expected. Reserve Bank governor Philip Lowe said in May it was “not unreasonable” to expect the cash rate to climb to 2.5%.
Lowe said on Tuesday that inflation in Australia was high, although not as high as it is in many other countries.
“Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,” Lowe said in a statement.
“Strong demand, a tight labor market and capacity constraints in some sectors are contributing to the upward pressure on prices,” he said, adding that recent floods were also affecting some prices.
The Reserve Bank adjusts interest rates to keep inflation within a 2%-3% target band.
The latest official inflation data was for the March quarter when the annual rate rose to 5.1%.
It was the highest annual rate since 2001, when a newly introduced 10% federal consumption tax created a temporary spike.
March quarter inflation was sharply higher than the annual 3.5% rate reported three months earlier. The rise was driven by a surge in fuel and housing costs and damage to crops from floods last year.
Flooding in Sydney and its surrounds since Saturday has further damaged crops in the region and will likely increase prices of some fruits and vegetables.
Lowe forecast last month that inflation would peak at 7% late this year.
Before the bank’s announcement, Treasurer Jim Chalmers anticipated the rate hike and acknowledged that it would cause financial pain for many.
“Just because these interest rate rises are expected doesn’t mean that they sting any less. For a lot of families and a lot of homeowners, they will have to find, in already stretched household budgets, even more to service the mortgage,” Chalmers said Tuesday.
“A lot of people are doing it incredibly tough already with the skyrocketing costs of essentials, like groceries and petrol and electricity, and this will make life even harder for a lot of Australians,” Chalmers added.