Interest rate updates: RBA raises cash rate for fifth consecutive month – as it happened

business journalist Gareth Hutchins is on hand to unpack this afternoon’s announcement and answer some of your questions.

“Interest rate hikes happen every month, there’s no gap to measure if they’re working. They should do nothing for three months and then look at the data, or they’ll go too far and force a recession” – Bigbobbyg

As reader Bobby pointed out, with the big increases in interest rates happening every month, it feels like there’s no time to gauge whether they’re working or not. Shouldn’t the RBA pause for a few months to see what happens to the data? Otherwise, don’t they risk going too far and triggering a recession?

Those are good points, so let’s review.

First of allthe RBA maintained the cash rate target at 0.1% of From November 2020 to May 2022.

Many economists say it has been kept too low for too long. They say the RBA should have started raising the target last year, so now they are catching up.

Secondlythe RBA has been spooked by the rapid rise in inflation this year, and it is trying to regain some control.

She fears that people’s behavior will change if we start expect that inflation will be higher in the future, so he tries to control people’s expectations. That’s why it’s so assertive.

Thirdlythere is a definite risk that the RBA is moving so quickly that it could cause economic damage, as there is a clear lag effect with rate hikes.

As far as mortgages are concerned, the RBA has even reasoned that there are millions of households with fixed rate mortgages who will switch to variable rates around the middle of next year, at which time they will suffer a big financial shock with a big jump in interest rates. So what will happen to consumption then?

Many economists have also noted that the RBA’s rate hikes are likely to be so high and so fast that it may need to start Chopped off rates again by the end of next year, once growth begins to falter and unemployment begins to rise.

The RBA knows all of these things.

But he argues that even though house prices have started to fall and consumer confidence is deteriorating, households are still spending (for now) and unemployment is still falling (for now). .

He thinks the economy is strong enough to withstand these rate hikes.

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