RBA’s controversial rate rise may not age well

The Reserve Bank’s decision to raise interest rates in the middle of a historic global energy shock is one of its most controversial in recent years. If the Middle East conflict lasts for months rather than weeks and drags the world and Australia down, Tuesday’s move to increase household borrowing costs may not age well.

The nine-member rate‑setting board was split five in favour of a hike and four in favour of a hold. Governor Michele Bullock said the debate was not over the direction of policy but its timing, and that the dissenting members “put more weight on the uncertainty and wanting a little bit more information”.

Bullock warned higher petrol prices risk broadening inflation. Headline inflation is 3.8%, well above the bank’s 2.5% target, and she said “high inflation hurts absolutely everyone”. The bank has modelled first‑round pass‑throughs from petrol to inflation but has not yet modelled potential impacts if the war continues; she said Treasury is looking at that as well.

Australia

reserve bank, interest rates, rate rise, michele bullock, inflation, petrol prices, middle east, household borrowing, rate board, treasury