The Reserve Bank of Australia (RBA) raised its base interest rate a quarter point last week, only a month after it announced a pause in rate increases so it could assess the economic impact of its higher rates.
The bank set the new rate at 3.85 percent, saying that inflation at 7 percent was still as much as two years away from falling to the bank’s target range of 2 to 3 percent.
“Given the importance of returning inflation to [the] target within a reasonable time frame, the board judged that a further increase in interest rates was warranted,” RBA governor Philip Lowe said in a statement announcing the hike.
The additional increase surprised financial markets, which had not priced in another boost.
“Some further tightening of monetary policy may be required to ensure that inflation returns to [the] target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,” Lowe added.
The bank’s forecast that inflation could stay above the bank’s target rate for another two years could become a self-fulfilling prophecy, according to Sean Longcake, chief macroeconomic forecaster at BIS Oxford Economics.
The prediction could persuade consumers to buy now before prices rise again, leading to a surge in demand that would require interest rates to rise again to beat back renewed inflation, he said in comments quoted by The Wall Street Journal.
TREND FORECAST: Once again, the formula is simple. The higher interest rates rise, the deeper economies fall. And, not a mention in the mainstream media that global economies were artificially pumped up with record low interest rates and countless trillions of dollars in government “aid.” Therefore, the largest equity and economic bubbles in the history of the world are now ready to explode.