+34
The Reserve Bank has raised the cash rate to a 15-year high, with Governor Michele Bullock warning high inflation hurts all Australians and further hikes remain possible.
The Reserve Bank of Australia has lifted the benchmark cash rate to a 15-year high, a fourth increase in eight months that Governor Michele Bullock says is needed to fight inflation.
Reserve Bank deputy governor Andrew Hauser first signalled the move three weeks ago on the ABC's 7.30 program. He told the national television audience: We have one big problem and that's inflation. Bullock then spent more than an hour unpacking her reasoning after the decision to raise rates, and RBA officials have since used multiple public appearances, including podcast interviews, to repeat the message. At the traditional press conference following the decision, a poised Bullock rammed home the same point.
RBA Governor Warns Of Recession Risk
She said: I know this decision is difficult for households with a mortgage and businesses with loans, but high inflation hurts all Australians, especially the most vulnerable. She even acknowledged the possibility the RBA's ongoing inflation fight could push Australia into recession if the public's expectations of inflation cannot be contained. It is understandable they felt the need to do a lot of explaining, because the circumstances for this interest rate hike are highly unusual.
Normally, rates rise when the economy is humming and demand is strong; the RBA intervenes with higher rates to slow things down and keep prices in check. This time, however, unemployment is near a five-year high, house prices are falling and economic growth per person is anaemic. These are hardly the conditions under which you would expect a fourth hike in eight months. US President Donald Trump's ill-advised and ill-fated attack on Iran is a big factor.
Inflationary pressures were stirring before the Middle East conflict began in February, but his intervention has made the inflation fight far more difficult. The RBA's short statement announcing the rates decision said global energy prices are now much higher than had been assumed only a month ago. Bullock labelled the Middle East conflict a big shock that has made us all poorer in this country. But it's not all about the Middle East conflict.
Domestic Spending And Budget Deficit Pressures
Complex constraints on what the Reserve Bank calls domestic capacity are also contributing to Australia's inflation problem. That means spending by the private sector, including consumers and businesses, and the public sector, including governments, is also pushing up inflation. The release of the Final Budget Outcome for last financial year on Monday was a reminder that, despite Australia's inflationary pressures, the federal government has been running a budget deficit.
It could be doing more to assist the Reserve Bank control inflation by spending less. The RBA's monetary policy board, which sets interest rates, has made it clear more increases are possible. In its short statement announcing Tuesday's decision, the board said it will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed.
Bond futures traded on money markets are signalling another interest rate increase by February and a 70 per cent probability of yet another hike by June next year. But the RBA faces a tricky balance as it tries to tame inflation while not causing lasting damage to the economy. Australia has benefited enormously from five years of low unemployment, but that could quickly evaporate if rates are lifted too high.
A lot will depend on how consumers and businesses react to the latest interest rate hike. A continued deterioration in the jobs market and further property price falls may prevent another rise. But if the Middle East conflict drags on, putting upward pressure on inflation, the RBA may conclude it has no choice but to lift interest rates again. Borrowers beware should senior Reserve Bank officials start appearing on national TV in the weeks before the next board meeting.
brisbanetimes
theage:This story was compiled and edited by the HeadTopics newsroom and HT AI from the reports above.
Interest Rate Hike Inflation Michele Bullock Middle East Conflict
Australia Latest News, Australia Headlines
Similar News: You can also read news stories similar to this one that we have collected from other news sources.
Chalmers Blames Middle East Conflict for Inflation Ahead of Rate HikeTreasurer Jim Chalmers deflects blame for inflation onto global oil prices and geopolitical tensions rather than wage growth, as Australia faces a near-record tax haul and imminent interest rate increase.
Read more »
Chalmers Blames Middle East War for Inflation Ahead of Expected RBA Rate HikeTreasurer Jim Chalmers has blamed the Middle East war for pushing up petrol prices as new budget figures show a near-record tax take, with the Reserve Bank widely expected to raise interest rates on Tuesday.
Read more »
Japan Moves to Reduce Middle East Oil Reliance as US Becomes Top SupplierJapan is accelerating efforts to diversify its oil imports away from the Middle East after a major energy shock, with the US emerging as its top supplier in July 2024. The shift includes plans for new pipelines, electric vehicle adoption, and reduced oil demand.
Read more »
Japan's Energy Pivot: Moving Away From the Middle EastJapan is reevaluating its heavy reliance on Middle Eastern oil and gas imports and is exploring diversified supply routes and sources, a move that could reshape regional energy dynamics and spur similar shifts across Asia.
Read more »