What’s The Deal With Interest Rates?

Australians across the country have been feeling the effects of higher interest rates.

Continuing to raise interest rates is an unfair tactic. It’s often presented by economists and the Treasury as a solution for an overheated economy. However, it seems to miss the mark by not addressing the big spenders who are driving up prices. Instead, these rate hikes benefit those with significant assets, as their investments earn more. On the flip side, people in debt are already struggling. Young, first-time homebuyers are finding it increasingly difficult to enter the market unless they receive help from family. Renters face higher payments as landlord investors prioritise protecting their rental income.

Interest rate hikes have led to reduced new builds, which coupled with taxes, have created a significant new-build shortage in excess of 40% lower than the already critical levels in the state of Victoria.

The flow-on effect is increased rental prices as more people are pushed out of home-ownership and the supply for the rental pool shrinks.

Upward pressure on interest rates have also significantly affected small businesses as people prioritise home loan repayments above discretional spending.

The last RBA Governor Philip Lowe said “more people need to live in each house” and “mortgage holders should work multiple jobs”.

High inflation harms everyone in Australia. It reduces the value of money and savings, making it tough for businesses to make plans and investments. This hits all Australians, especially those with low incomes. Keeping inflation low and steady, meeting the inflation target, helps the economy grow steadily and strongly in the long run. The most helpful thing monetary policy can do for Australians is to bring inflation back to target within a reasonable timeframe.

Relief on the Way?

According to the RBA’s February Statement, “Inflation continues to moderate and is expected to return to the target range of 2-3 per cent in 2025…”. The monthly CPI indicator from January 2023 to January 2024 was 3.4% according to the RBA. The current cash rate is 4.35%.