The Squiz

What goes up… goes up again. The Reserve Bank board has raised the official cash rate by 0.25%, taking it to 4.35%. It might feel like yesterday, but the last increase was in June, and it means there have been 13 increases since May 2022, with yesterday’s lift taking rates to a 12-year high.

But why?

Let’s dusk off this old tune… The Reserve Bank’s job is to keep Australia’s inflation within a target range – at the moment, that’s 2-3%. Currently, inflation’s running at 5.4% annually, so we’re way over the mark, and the central bank says it’s more persistent than expected. Globally, economists blame a post-COVID spending blitz combined with supply-chain issues, as well as the disruption to energy supplies due to Russia’s invasion of Ukraine. Here in Oz, it’s petrol, electricity, and housing price rises (both buying and renting) that are fuelling it. So the idea is that higher interest rates will mean taking our foot off the spending pedal, which reduces economic activity and should slow price rises. It also means a cost of living crunch, and yesterday, Treasurer Jim Chalmers said that he understands yesterday’s rate decision “will make life harder for people who are already doing it tough”.

Is that it for rate rises?

Dunno, but many of the economists who predict yesterday’s rate rise have already flagged a December bump as well… As for what the new Reserve Bank Governor Michele Bullock has to say, she noted the “significant uncertainties” in the global market – namely China’s wobbly economy and the curveballs thrown by regional wars. She says that “the Board remains resolute in its determination to return inflation to target and will do what is necessary”. As for when we’ll hit that 2-3% inflation target, officials reckon we’ll be at 3.5% at the end of next year and within target by the end of 2025. Strap yourself in…