The Reserve Bank has lifted official interest rates by a quarter of a percentage point, in a decision that will add about $100 a month to the repayments on a $600,000 mortgage.
Thank you for following our live coverage of today’s decision from the board of the Reserve Bank of Australia to raise interest rates. Here’s what we learned:
While this blog will be closing for the day, you can follow our rolling coverage of the war in Iran here.
National Australia Bank is the first major bank to respond to this afternoon’s hike in interest rates, saying it will raise variable mortgage rates by 0.25 percentage points. The change will come into effect on Friday, March 27.
NAB group executive for personal banking, Ana Marinkovic, said the bank recognised the pressure that higher interest rates placed on home loan customers.
“We know another rate increase will be challenging for many Australians, particularly in the context of ongoing cost of living pressures,” Marinkovic said.
“Many customers have built buffers over time by paying more than the minimum when they can, which can provide some breathing room as rates rise. But we know that won’t be the case for everyone.”
Our senior economics correspondent, Shane Wright, says the Reserve Bank’s overwhelming concern was how the war in the Middle East would play into inflation. Specifically, the fact that it has driven oil prices beyond $US100 with flow-on impacts in areas including fertilisers and international travel.
Oil prices are high not because of surging demand, which is the normal driver of inflation. Instead they are being driven by questions over supply, which is effectively in the hands of Iran and its network of drone operators who are threatening to unleash hell on any ship that moves through the Strait of Hormuz.
High-priced oil will slow the economy. The extent of that slowing, however, is not in the hands of the Reserve Bank. That sits with Donald Trump and his preparedness to wage war against a country that wants to hold the US - and effectively the developed world - to ransom.
The 5-4 vote reflects just how tough a decision the bank faced, and the stakes that are at play. A further step-up in oil prices - some analysts are saying $US200 a barrel is not out of the question - and an extension of the war cannot be ruled out. A combination of eye-wateringly high petrol prices and higher interest rates could easily force the bank into reverse.
Five members of the Reserve Bank’s monetary policy committee are worried about inflation right now. Four are more worried about where the economy will be in a few weeks’ time.
That’s the simple takeaway from the bank’s split decision to push the cash rate up by a quarter percentage point.
But there was one person, who didn’t cast a vote one way or the other, who will have a big say on the future direction of interest rates in this country and that debate between inflation hawks and economic doves – Donald Trump.
Expectations of a rate hike were super-charged after Israel and the United States launched their attack a fortnight ago. Investors and economists, already concerned about domestic inflation and a tight job market, believed the war and its impact on global oil prices (amongst other things) would force the Reserve’s hand.
Greens leader Larissa Waters has blamed the Albanese government and its involvement in conflict in the Middle East for today’s rate hike.
“This rate rise won’t end the war that is pushing up prices, or prevent corporations from using the illegal conflict to rip people off. It will only hurt millions of Australians, and Labor must step in to stop it,” Waters said.
“It’s not mortgage holders and renters who caused prices to spike - it’s the politicians who gambled with the global economy, backed dropping bombs on kids, and are now pretending to have nothing to do with it,” she said.
Waters said Labor should “make corporate price gouging illegal, rein in tax breaks for property investors, implement a rent freeze, introduce divestiture powers, tax wealth and advocate for peace not war,” as measures to cool down the economy.
“Labor, Liberal and One Nation have driven this wartime economic crisis by backing Trump and Netanyahu’s illegal war, they’ve worsened it by sending troops, and now millions of Australians are paying the price.”
Michele Bullock has refused to speculate about whether interest rates would have remained steady if the war in the Middle East had not broken out, but said other central banks across the world appeared increasingly concerned about inflation in their home nations.
“I couldn’t answer that ... sort of hypothetical question about what we would have done in the absence of the war. What I can say is that certainly it heightened our concerns about inflation in an ongoing sense,” Bullock said.
The governor said the “whole curve” among major central banks – except for Japan – was towards interest rate hikes.
“The whole Middle Eastern situation has resulted in, obviously, concerns about inflation, and as a result, a lift in expectation for central bank interest rates,” she said.
The Reserve Bank does not want to see Australia fall into recession, but governor Michele Bullock says the country will have to deal with that possibility if inflation does not fall.
“The bottom line is that, in the end, if we don’t have low and stable inflation over time, we won’t have full employment,” Bullock said.
“[The] best contribution we can make to full employment [and] things like investment and productivity and so on, is to have low and stable inflation. So we do need to keep our eye focused on that ball.
“We don’t want to have a recession, but if it’s hard to get inflation down, then, you know, we’re going to have to deal with that possibility.”
Inflation in the economy was too high before the conflict in the Middle East led to rising petrol prices, Reserve Bank governor Michele Bullock has said.
“Higher petrol prices will add to inflation, but they’re not the reason for today’s decision. Inflation was already too high, reflecting the fact that demand is outstripping supply,” Bullock said after the bank raised interest rates this afternoon.
While the recent spike in fuel prices might have given the bank a reason to keep rates steady – higher fuel prices can operate as a de facto interest rate rise by taking money out of the economy – Bullock said it wasn’t enough to ease demand.
“Higher fuel costs will not slow demand enough on their own to address this,” she said. “If we do not act, these price pressures will spread and the eventual adjustment would be harder.
“The board concluded that the cash rate was not at a level consistent with returning inflation to target within a reasonable time frame. If the Middle East conflicts get worse or are not resolved soon, higher fuel costs will push inflation here even higher.”
Shadow treasurer Tim Wilson has accused Labor of denying the impact that government spending is having on inflation, saying that Treasurer Jim Chalmers needed to show “some humility” in the face of rising inflation.
“What we need from the government, and from Jim Chalmers particularly, is some humility and acknowledgement of the responsibility the government has in causing this inflation crisis and the increase in interest rates,” Wilson said.
“What we’ve heard from the treasurer today in his press conference is that he is in a complete state of denial of the contribution that the federal government is having to increase interest rates. They continue to pour debt petrol on the inflation fire. There is denial about the contribution the federal government is making.”
Chalmers said during his press conference this afternoon that the Reserve Bank had not pointed to public spending as a major cause of inflation.
The government is not anticipating a need for fuel rationing, Treasurer Jim Chalmers says, noting that the consumer watchdog received confident feedback from fuel suppliers at a meeting today about the state of fuel supply moving forward.
“Now, obviously there’s a lot of volatility and unpredictability and how this plays out through the coming weeks and months, but that outcome [fuel rationing] is not something that we’re anticipating,” Chalmers told reporters this afternoon.
“Ships are arriving. We’ve got very substantial stockpiles. We’ve released more into the system. We’ve relaxed the fuel standards, and so there is a level of confidence that we will avoid that situation that you are describing.”
Chalmers said a meeting between fuel suppliers and the Australian Competition and Consumer Commission this morning offered a positive outlook for national fuel supply.