THE SQUIZ

Australia hasn’t seen an official interest rate rise since November 2010… But today, that might change when the Reserve Bank board meets to hold its monthly review of monetary policy to decide if it will hold, lift or drop the official rate. It’s currently at the historic low of 0.1%, where it’s been since November 2020. Many analysts are expecting a 0.15% rise to 0.25% today, followed by a series of 0.25% hikes. And in case you haven’t noticed, we’re in an election campaign, so this is fraught territory for an independent central bank to tread… 

BEFORE WE MOVE ON, EXPLAIN THE CASE FOR A RATE RISE…

You betcha. The Reserve Bank’s job is to use monetary policy to ensure that the growth in prices (aka inflation) is manageable. That’s a fancy way of saying it can increase the cost of money by raising the official interest rate to slow the economy down, or lower the cost of money by lowering it to encourage spending, which promotes economic growth. Individuals and businesses borrowing money to spend or invest has a big impact on the economy, and the interest rate has a big influence over how much of it happens. The problem right now is inflation is high at 5.1% thanks to the bounce out of COVID, supply chain issues, and the Ukraine war’s impact on global energy prices. So raising interest rates will put a handbrake on borrowing, which will slow the economy down a bit, which will stop prices from rising so quickly, which will lift some of the cost of living pressures off Aussies’ shoulders, which will help us live better lives. Simples… 

SO WHAT’S GOING TO HAPPEN? 

Dunno. But if you’ve got a mortgage, you’re likely to be glued to the news at 2.30pm today to hear what the Reserve Bank decides. If the rate rises to 0.25% today, a home buyer with a $500,000 mortgage would see their repayments rise by about $39 a month. That might not sounds like a lot to some, but rates are set to go up by more than that. Note: the financial regulator says 280,000 people who have taken out loans in the last 2 years have borrowed 6 or more times their income and/or have borrowed more than 90% the value of the home. Add to that the chilling effect a rate rise has on home prices, and it’s a serious economic calculation. As for the political maths, it would also mark the first hike during an election campaign since 2007, a race John Howard went on to lose. No wonder PM Scott Morrison is putting come distance between himself and the decision…