Australia Trails Behind Iceland as Interest Rates Soar

Australia's interest rate is now one of the highest in the world, but it still trails behind Iceland. The Reserve Bank of Australia (RBA) raised rates to a 15-year high on Tuesday, bringing them up from 4.35 per cent to 4.6 per cent.

This puts Australia second only to Iceland among comparable economies. Iceland's cash rate currently sits at 8 per cent, the highest among the 41 advanced economies defined by the International Monetary Fund.

The Central Bank of Iceland set this historic rate in August, citing hikes in public levies and price increases caused by the war in the Middle East as reasons for the increase.

However, independent economist Saul Eslake attributes Iceland's high interest rate to over two decades of financial instability. He points out that Iceland had a major boom before the global financial crisis of 2007/8, but then faced the collapse of its banking system and house prices, leaving it vulnerable to shocks.

RBA Governor Jim Chalmers rejected a comparison with Iceland's interest rate, saying Australia has faster economic and employment growth, low debt, and an economy equal to the US. He acknowledged that the country is facing challenges from around the world, but believes it can handle them.