The Reserve Bank this week lifted the official cash rate by another 0.5 percentage points to 1.35 per cent.

Just two months ago the interest rate was sitting at just 0.35 per cent, which is a full 1 per cent lower than it is right now.

The RBA has its sights set firmly on reining in soaring inflation and this week sent a strong message to the nation – spend less or rates will keep climbing.

Governor Philip Lowe said there’s more rate hikes on the way to take the sting out the economy.

“Today’s increase in interest rates is a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic,” Dr Lowe said.

“The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.”

It’s a busy time for the central bank, they are having to contend with supply chain problems, the war in Ukraine and tight labour markets.

It’s very much a global perspective for the RBA, with governor Lowe making a point to say he was keeping an eye on other countries, many of which were experiencing household income struggles as bad, if not worse, than here in Australia.

According to Gareth Aird from the Commonwealth Bank the Australian RBA is able to show more patience than some other countries that have even higher inflation.

“The RBA is not on a crusade to hasten a drop in the rate of inflation at all costs, other banks appear more impatient,” he told the ABC.

“The rate of inflation in Australia is not as high as many other comparable countries, and Australia also has a lower rate of wages growth.

“Our household sector is one of the most indebted in the world and the transmission mechanism from the policy rate to the real economy is much more direct due to the structure of our mortgage market.”

Marcel Thieliant from Capital Economics has revised his inflation forecast, tipping it to rise even higher to an 8 per cent peak with interest rates rising to 3.5 per cent and said it’s bad news for house prices.

“But we doubt that monetary policy will remain this tight for long. After all, we now expect house prices to plunge by 15 per cent from their peak in April which would mark the deepest downturn in Australia’s modern history, he told ABC.

RBA governor Philip Lowe maintains his forecast that inflation is set to peak later this year before slipping back to their target range between 2-3 per cent sometime in 2023.

“As global supply-side problems continue to ease and commodity prices stabilise, even if at a high level, inflation is expected to moderate,” he said.

“Higher interest rates will also help establish a more sustainable balance between the demand for and the supply of goods and services.”


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