The Reserve Bank of Australia (RBA) has lifted interest rates again – and for many Australians, the reaction will not be confusion, but exhaustion.
On paper, the logic is familiar. Higher interest rates are meant to tame inflation, cool spending, and bring the economy back into balance. In practice, they are a blunt instrument – and today’s decision lands at a particularly difficult moment.
Fuel prices are already rising, quietly eating into household budgets before anyone has even stepped inside a supermarket. For families juggling mortgages, rent, groceries and energy bills, this latest rate hike feels less like economic management and more like piling on.
Timing matters in economics. And this feels like the wrong time.
Australia is not dealing with runaway consumer demand so much as a prolonged cost-of-living squeeze. Many of the pressures driving inflation – global energy markets, supply chains, and corporate pricing – sit well beyond the control of ordinary Australians. Yet it is those same households who are being asked, once again, to absorb the impact.
Higher interest rates don’t just slow spending. They hit mortgage holders immediately, push up rents over time, and dampen business investment. In other words, they don’t just reduce demand – they reduce confidence.
And confidence is already fragile.
For younger Australians and first-home buyers, the dream of home ownership drifts further out of reach with each increase. For small businesses, already operating on thin margins, higher borrowing costs can mean delaying expansion, cutting staff, or closing altogether.
Then there’s the broader risk: overcorrection.
Central banks are tasked with walking a fine line. Move too slowly, and inflation lingers. Move too aggressively, and the economy stalls. With households already under sustained pressure, there is a growing concern that the RBA may be tightening into weakness rather than strength.
None of this is to suggest inflation should be ignored. It is a real problem, and left unchecked it causes its own damage. But policy responses need to reflect the nature of the problem – and right now, much of the pain is being driven by factors interest rates cannot fix.
Which raises a difficult question.
If Australians are already cutting back, already feeling the strain, and already adjusting their behaviour – what exactly is this latest rate rise meant to achieve?
Because from the perspective of many households, the answer is becoming harder to see.
What is clear, however, is the immediate effect: higher repayments, tighter budgets, and another hit to already stretched living standards.
At some point, the cure risks feeling worse than the disease.
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https://www.youtube.com/shorts/C42W0CwRCi4
Same shit, different day….
https://en.wikipedia.org/wiki/1973_oil_crisis
Whether they realize it or not, the RBA have entered political country with the opposition already pouncing on the increase as not being unanimous and Tim Wilson of course blames Labor for ‘pouring petrol on the inflation fire’. And of course we are told there has been another surge in One Nation’s popularity and presumably their non-existent economic policies.
Bad move RBA and you may see this reflected in the SA election as folk are now believing that interest rate increases are directly due to Labor’s economic policies.
In the present global climate the prudent decision would have been to leave things as they were at least until May.
On a side note: Len Deighton has died.
Uhm ….. I must be a little silly, but how can you control inflation while you do nothing to reduce the inducements to spend??
The under-whelming NO-GO-ALBO government and the RBA appear to believe that ”real prosperity” resides in a few instant, irregular profits rather than gradual economic growth.
The solution lies in looking at ALL the current applications of government taxation across the too much charity to banks plus both national & foreign owned international corporations.
1) Restrict Negative Gearing (NG) to new build residential housing, limit NG eligible properties to one more than the principal residence, return CGT to pre-Howard levels, limit grandfathering to say five (5) years with suitable concessions for the multiple residential landlords to divest excess properties.
2) Stop the fossil fuel exploration charity to foreign owned multinational corporations ….. Australia is allegedly cutting CO2 pollution so why discover more fossil fuel deposits??
3) Introduce an ”International Financial Transaction Tax” of ten cents per MILLION ($0.10 per $1,000,000.00) for all financial movements over $1 MILLION out of Australia.
4) Change the CSG Howard free gift of East Coast CSG to foreign owned multinational fossil fuel corporations that generated BILLIONS OF DOLLARS PROFIT to the secondary market ….. that Australian tax payers missed.
5) Introduce an ”Education Voucher System” where every kid gets the exact same funding for attending the school of their parent’s choice. It has worked in NZ for 40+ years.
Just a few ideas ….. that will likely be ignored because too few politicians read AIMN.
I’ve previously posted-
• the federal government has outsourced inflation control to the Reserve Bank, and
• the use of interest rates (only) to reduce aggregate demand (ie inflation) is inequitable.
Deficit spending by the federal government also fuels inflation, and I was astounded by Treasurer Chalmers comment today that the federal budget would be responsible, “as far as possible ”
WTF!!! What’s wrong with simply being responsible?
I have also advocated the use of tax measures to reduce aggregate demand, interestingly I’ve head a range of economic experts advocate this in the past 24 hours.
My preference is for to combine the Reserve Bank with a new independent fiscal authority and have it determine a variable GST, and official interest rates.
Using several levers is necessary, and we can’t rely on any government to demonstrate the required resolve
“… too few politicians read AIMN.”
A common complaint around social media, NEC.
But sometimes we get surprises. I’ve seen a number of well-known politicians/former politicians share our articles on X (Twitter), the most notable being Wayne Swan. And a bit under two years ago Gareth Evans wrote an article for us.
And from the dark side John Hewson wanted to know a bit about us. We spoke, but nothing eventuated because I got the distinct impression he didn’t like me.
Sally McManus is a reader, btw. She likes us.
Never mind, the rich are ok…that is all she and her friends care about.
As for Hewson, I found him ok on soc Meja. All sorts of strange folk on soc meeja. Some of the stuff is really weird, some is quite intelligent.
If you want “weird”, go to soc meeja and the slagging off of a “difficult woman”
by liars and bigots.
Interestingly the major plank in the One Nation pitch in SA is immigration.
Did nobody tell Pauline that migration issues are handled at a federal level and the states have no involvement in setting levels of immigration?
Perhaps the surge in One Nation polling reflects the popularity of their economic policies which. I have to concede, have bypassed me!
Cory Bernardi, Mark Latham, Barnaby Joyce : has One Nation become a graveyard for failed politicians ?
Instead of always hammering on the demand side of the inflation equation, how about looking at the real drivers: supply limitations and profiteering?