Why Reserve Bank Governor Philip Lowe wants to damage the economy further
The ConversationJun 06, 2023
The Facts
On Tuesday, the Reserve Bank of Australia (RBA) raised its interest rate by 0.25 percentage points to 4.1% — an 11-year high — and warned that more rate hikes may be needed to bring inflation down.
RBA Governor Philip Row said that while "inflation in Australia has passed its peak," its current rate "is still too high." As of April, Australia's annual inflation rate was 6.5%, well above the bank's goal of between 2% and 3%.
The Spin
Pro-establishment narrative
Households and businesses will suffer if inflation remains at these levels for too long, which is why tough measures must be taken if the country hopes to keep inflation from permanently entrenching itself in the economy. The RBA is trying to walk a tightrope between acting in the country's best interests and shoring up Labor's political fortunes.
Establishment-critical narrative
Following 12 rate hikes in 14 months, the RBA has seemingly gone rogue in its policy decisions while doing little to relieve average Australians from the rising cost of living. Instead of introducing higher taxes on the wealthy, Labor has allowed the RBA to increase mortgage costs by $15K annually and costs to spiral. The RBA is simply losing its doomed war on inflation.
Nerd narrative
There's a 50% chance that if Labor wins the next Australian election, the Reserve Bank's cash rate target in June 2025 will be at least 1.44%, according to the Metaculus prediction community.