Possible Australian rate hike puts cost of living in focus in election campaign

SYDNEY, (Reuters) – Australia’s ruling coalition is bracing for a possible rise in interest rates on Tuesday right in the middle of a national election campaign that could further increase living costs and hamper Prime Minister Scott Morrison’s re-election efforts.

The Reserve Bank of Australia (RBA) will decide later on Tuesday whether to lift official cash rates – for the first time in more than a decade – from record lows of 0.1% in a bid to tame inflation that surged at the fastest annual pace in two decades last quarter.

Morrison said voters will understand any change in rates will be due to global events and not due to his government’s handling of the economy.

“We have been in a rather extraordinary global environment,” Morrison told radio station 3AW.

“What has been driving (interest) rates so low for so long is what has been happening predominantly in the global economy. I have never argued against that.”

Morrison blamed the war in Ukraine and COVID-19 lockdown in China for the inflation shock but argued Australia was in a better economic position than many developed nations.

The central bank is in a quandary as it makes checks on whether to raise rates weeks before the election on May 21. The last time RBA increased it during an election campaign was in 2007 when then Prime Minister John Howard lost the vote and his seat.

A Reuters poll done April 27-29 showed half of 32 economists betting the RBA would raise the official cash rate

With inflation rising twice as fast as wages, real incomes are in the red putting pressure on Morrison’s Liberal-National coalition, that has a one-seat majority in the lower house of parliament. Centre-left Labor is ahead in polls.

Ahead of the central bank decision, an ANZ survey showed Australian consumer sentiment dropped 6% last week as high inflation numbers fuelled concerns about the cost of living.