Never, in the three decades the Reserve Bank has been targeting inflation, has it been tested by prices rising in unison like this.
Inflation has hit 6.1%, and the rate of inflation on necessities is 7.6%. Bringing it down will require still higher interest rates and exquisite judgement in order to avoid a recession.
Bank of Canada
The review will examine the bank’s Act, its inflation target, its management and recruitment process and the composition of its board.
The Reserve Bank of Australia has delivered a ‘double-whammy’ interest rate rise, with up to five more to come in 2022.
Wes Mountain/The Conversation
The panel believes Australia will avoid a recession the year ahead, but is much less certain about the United States. It expects real wages to go backwards and economic growth to sink.
Dark warnings about rising labour costs ignore the importance of profits in driving higher prices.
Looking back at the Reserve Bank’s performance in setting interest rates over the past generation, we’d grade it an A for earlier years – but a fail for the years just before the pandemic. Here’s why.
Bianca de Marchi/AAP
Critics ought to acknowledge that on average over time Australia’s Reserve Bank has met its inflation target, but it is worthwhile examining the way it is run.
The extraordinary increase in house prices and debt means mortgage rates of 7% would be as painful to borrowers today as rates of 17% were decades ago.
If financial markets are to be believed, you’ll be paying $1,000 a month more on a $500,000 mortgage by the end of next year. But I don’t think interest rates will go that high – here’s why.
For the past 30 years or so, the RBA has targeted an inflation rate of 2-3%. But the rationale for a rate that low was always weak, and has since broken down.
The independent review of the Reserve Bank should be headed by someone from outside the country say 12 leading economists in an open letter to the treasurer.
The share of the population in work has hit an all-time high as the share of the workforce underemployed has hit a 14-year low. The fresh low in unemployment will bring higher interest rates, and perhaps higher wages.
Some earners will take home less after a tax switch legislated years ago and now supported by both sides of parliament.
Some foreign officials promoting central bank digital currencies want to be able to track and limit transactions in real time.
Governor Philip Lowe says it is “not unreasonable” to expect the cash rate to climb to 2.5%. That’s an extra $600 to service a $500,000 mortgage.
Reserve Bank Governor Philip Lowe.
Why raise rates now, for the first time in more than a decade? If the Reserve Bank isn’t careful, too many more rate hikes like this might help bring on a recession.
Japan Ministry of Finance/Shutterstock.
The best way to manage the economy is though an array of tools. Interest rates are just one.
The government used to set interest rates but it doesn’t anymore. If UAP really did try to deliver on an election promise to cap interest rates at 3% for five years, what would the consequences be?
Inflation is well outside the Reserve Bank’s target band and higher than it has been for two decades.