Central Banks Hold or Cut Interest Rates

Australia increased its cash rate by 25 basis points to 4.35 percent on May 5, citing inflation concerns linked to the Middle East conflict. Mortgage holders in Australia face higher repayments while central banks in several other countries have held or lowered rates in recent years.

New Zealand lowered its official interest rate to 2.25 percent from a 2023 peak of 5.5 percent. The country's higher unemployment rate and weaker economic growth compared with Australia contributed to the decision. Christina Leung, deputy chief executive at the NZ Institute of Economic Research, said Australia's stronger economy prompted its central bank to raise rates.

New Zealand's central bank is monitoring fuel price increases from the Strait of Hormuz closure and may begin raising rates in July.

The Bank of England kept its interest rate at 3.75 percent in April, the lowest level since its 2023 peak of 5.25 percent. Inflation rose to 3.3 percent, above the government's 2 percent target, amid higher energy prices. University of Oxford economics professor Michael McMahon said the Bank of England's decision not to cut rates further was comparable to Australia's rate increase.

Fixed mortgage rates in the United Kingdom have begun rising as lenders anticipate possible rate hikes in June.

The Federal Reserve left its interest rate band at 3.5 to 3.75 percent last month. Its preferred inflation measure reached 3.5 percent over the year to March, the largest increase in three years. University of Sydney senior lecturer Luke Hartigan said most U.S. mortgage holders hold long-term fixed-rate loans, limiting immediate effects from rate changes.

Australian National University professor Wesley Widmaier noted the Federal Reserve faces pressure from higher energy prices and political considerations.

The Bank of Japan raised its interest rate to 0.75 percent in December, a three-decade high. The central bank has kept rates low since the 1990s asset bubble burst and subsequent economic stagnation. Oxford Economics Japan lead economist Norihiro Yamaguchi said inflation is expected to reach the 2 percent target later this year.

A weak yen remains the central bank's main concern as it could increase import prices.

Bank Indonesia maintained its interest rate at 4.75 percent to support economic growth while protecting the rupiah. Pulungan said rates could rise toward the end of the year if pressure on the rupiah increases.