Australia hiked its interest rate for the first time in more than a decade as consumer prices surge.
The cash rate will be increased by 25 basis points, the first hike in over a year.
Philip Lowe, governor of the Reserve Bank of Australia, said it was the right time to begin withdrawing some of the extraordinary monetary support put in place to help the Australian economy.
Lowe said that the economy has proven to be resilient and that inflation has picked up more quickly than expected. It is appropriate to begin the process of normalising monetary conditions given the low level of interest rates.
The hike was more than the analyst estimate of 15 basis points and the median forecast of 32 economists.
The central bank was expected to hike rates due to the rapid rise in inflation. The prices of food, petrol and other consumer goods all went up in the last quarter.
Australia's consumer price index jumped 2.1% for the first quarter, exceeding expectations, data showed last week. Consumer inflation increased by 5.1% on an annual basis, the highest since 2001 and better than expectations for a 4.6% increase.
Lowe acknowledged in his statement that inflation had picked up more than expected, though it remains lower than in most other advanced economies.
The rise in inflation is largely due to global factors. He said that domestic capacity constraints are playing a role and that inflation pressures have broadened, with firms more prepared to pass on cost increases to consumer prices.
Lowe said that a further increase in prices is expected in the near term, but as supply side disruptions are resolved, inflation is expected to decline back to the 2% to 3% range.
The outlook for Australia's gross domestic product remains positive and is expected to grow by 4% over the next two years. There are uncertainties that may hit the global economy, such as the Russia-Ukraine war and Covid disruptions in China.
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