The daily updates about COVID-19-infected patients have been over the past couple of months replaced by a constant conversation about The Reverse Bank’s actions, considerations, or feedback from other experts. It seems that these conversations are to persist still for a while.
The RBA signaled earlier it would hold official rates at 0.1 percent until 2024, however, the official cash rate is 3.6 percent as the 10th consecutive rise as of March in its bid to drive down inflation.
Anger over the bank has intensified and a recent decision has been made to remove RBA’s board powers to set interest rates and be replaced by a board of monetary policy experts with the view that the board should be focusing on the operation of the bank; overseeing the payment system and debating the use of cryptocurrency and central bank digital coin; rather than the setting of interest rates every month.
This is the biggest break with past to Australia’s economic policy settings in a generation that would bring the Reserve Bank into line with its international peers such as the Bank of England, while ending the system that was proposed during the Great Depression in the 1990s. In other countries with specialist committees of monetary policy experts, central banks usually meet every six to eight weeks, while the RBA currently meets every month.
Homeowners have been given a brief relief since the RBA paused the interest rate in April, increasing variable repayments on homes by tens of thousands of dollars. Even with the pause, it is the fastest-tightening cycle in Australia we have ever experienced. According to an ABS report released last month, the RBA’s aggressive strategy has brought down inflation rates. The current inflation figure is 6.8 percent for the 12 months to February, down considerably since January’s stark 7.4 percent rate of inflation.
Inflation is a macroeconomic indicator that helps to influence how the RBA will or will not change the cash rate. Inflation itself is not necessarily a bad thing; in fact, steady and well-managed inflation is a sign of a growing economy. To curb its growth is by decreasing our spending. By slowing down spending, you should, in theory, slow down economic growth. And when you’re experiencing annual inflation levels near 8%, supply chain issues, global conflict, and low wage growth, ensuring that everyday Australians can still afford their weekly groceries is crucial for any central bank.
Veronika Holubova (MFinP, GradCertFP, ADFP, DipFP) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
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RBA board to lose interest rate setting powers (smh.com.au)
RBA pauses interest rate rise for April, cash rate to stay the same | news.com.au — Australia’s leading news site
Australia February CPI: Australia’s inflation rate slows to 6.8 per cent in February (9news.com.au)
Australian Inflation Rate Soars – Forbes Advisor Australia
How does raising interest rates curb inflation? (ratecity.com.au)