Matters of interest

14 November 2022

Welcome to 'Stray Thoughts', where the Eureka Street editorial team muses on ethical and social challenges we've noted throughout the week. As 2022 enters the final stretch, there are ominous signs of a rough few months ahead. I haven’t ever paid a great deal of interest in interest rates, and maybe there hasn’t been cause for Joe Citizen to give it much thought over the last three decades. We don’t pay attention to the systems that operate in the background until they start to negatively affect us.

Over the last seven months, the Reserve Bank has firmly stepped into the foreground, jacking up interest rates more aggressively than we’ve seen in a generation. RBA Governor Philip Lowe might as well be taking his cues from recent figures on average national rainfall. Now, as banks pass on the recent rate hikes to borrowers and each loan repayment becomes acutely felt, interest-watching has become something of a national obsession.

During the crash course on economics the Australian public has found itself enduring, we’ve learned two things: 1) Inflation – demand outstripping supply for all the goods and services in the economy – has become the bogeyman of Australian politics, and its causes are numerous and beyond the government’s control. 2) Interest rate manipulation is the single blunt object with which to bludgeon the economy into bloody submission.

Interest rate hikes, or ‘removing money from the economy’, will eventually drag inflation down from 7.3 per cent to, Jim Chalmers hopes, somewhere around 2-3 per cent. But ‘removing money from the economy’ is another way of saying ‘making everyone poorer’, a process that will continue until we all stop spending money. In this case, the RBA is preaching to the choir. Goodness knows, my family stopped discretionary spending back when a head of lettuce started costing more than a summer on the Peninsula.

Philip Lowe has done his best to explain the actions of the RBA, attempting to convince Australians that without intervention, inflation will run amok with longer and more damaging effects than rate hikes. Doing so hasn’t won him too many friends, and I don’t envy his position. Yes, we get it. No, we’re not happy about it.

That’s especially true with the long months it will take for results to materialise. In a world of instant gratification, we’re being asked to play a long, expensive game over coming months and years. Spokespeople from the RBA keep talking about the significant time

AUSTRALIA

Matters of interest

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