Canberra, May 2 (IANS) After keeping the interest rate on hold last month, the Reserve Bank of Australia (RBA) on Tuesday announced the decision to lift the cash rate target by 25 basis points to 3.85 per cent, with the rate paid on Exchange Settlement balances also up by 25 basis points to 3.75 per cent.

It marks the 11th increase handed down by the central bank in the space of a year, reports Xinhua news agency.

The newly-updated interest rate also hit its highest level since it was cut to 3.75 per cent in May 2012.

After a board meeting, RBA Governor Philip Lowe said in a statement that inflation in Australia has passed its peak, but at 7 percent is still too high and it will be some time yet before it is back in the 2-3 per cent target range.

“Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today,” said Lowe.

According to the statement, while the recent data showed a “welcome decline” in inflation, the central forecast remains that it takes a couple of years before inflation returns to the top of the target range, with inflation expected to be 4.5 per cent in 2023 and 3 per cent in mid-2025.

Lowe also pointed out that the central forecast is for the economy to continue growing, albeit at a below-trend pace.

“GDP is forecast to increase by 1.25 per cent this year and around 2 per cent over the year to mid-2025. Given the expected below-trend growth in the economy, the unemployment rate is forecast to increase gradually to be around 4.5 per cent in mid-2025,” said the governor.

He added that some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.

Latest statistics from the Australian Bureau of Statistics showed that the annual CPI inflation in the country was 7.0 per cent in the March quarter, down from a 30-year high of 7.8 per cent in the December quarter.

The monthly indicator rose 6.3 per cent in the 12 months to March, following annual rises of 6.8 per cent in February and 7.4 per cent in January.