Will interest rates rise today?

The Reserve Bank of Australia (RBA) is meeting today, and will provide an official interest rate update this afternoon. After months of speculation about whether the rate should remain on hold or drop, the spectre of a rate rise has returned. This speculation is being driven by a slight uptick in the inflation rate, and the Reserve Bank hates inflation.

Inflation, of course, has many drivers. Pumping up the official cash rate is just one lever the RBA can pull. According to some, it is definitely not the right lever to pull right now.

Leading the call against another rate rise is the Australian Council of Social Services (ACOSS). In fact, it has called for the rate to be dropped. In a statement, the advocacy group said this would “stop more job losses and ease growing household financial distress”.

Looking at the raw figures, ACOSS’s call seems reasonable. Its statement points out that since rate rises began in mid-2022, 75,000 people have lost their jobs. And Treasury predictions of the unemployment rate rising to 4.5 per cent next year would mean another 60,000 jobs lost.

ACOSS acting CEO Edwina MacDonald said a lowering of the official interest rate was needed to reverse that trend. She said ACOSS was deeply concerned about further job losses should the RBA not cut rates today.

Ms MacDonald used that prospect to highlight one of ACOSS’s top concerns. It would mean “more people will be joining the 900,000 people who are already on woefully inadequate unemployment payments”.

Interest rate versus inflation rate

The RBA has long held a view that Australia’s inflation rate should lie between 2 and 3 per cent. But some financial experts have criticised what could almost be described as an obsession with achieving and maintaining that target.

ABC business reporter Daniel Ziffer wrote this week: “The RBA’s laser focus on getting inflation down … has been disturbing some observers for a couple of reasons. First, because it will likely cause a rise in unemployment, which means people will lose their jobs.”

Ms MacDonald is one of those concerned observers. She said a lowering inflation at any cost approach could have serious consequences for those who can least afford it.

“We have reached a turning point in the fight against inflation, which has already been reduced by half from 8 per cent to under 4 per cent,” she said.  Ms MacDonald pointed out that many central banks are now considering rate cuts, rather than increases.

“The living standards of people on low and modest incomes have been decimated over the past few years,” she said, “partly due to inflation but also due to higher interest rates.”

An alternative measure

Ms MacDonald believes an overemphasis on the inflation rate could result in the cure becoming “worse than the disease”. She also pointed out that if using an alternative measure known as the ‘trimmed mean’, inflation has actually fallen recently.

Rate hikes were very much a “blunt tool”, Ms MacDonald said. “Inflation can be better addressed by tackling price rises at their source, such as curbing excessive increases in rents.”

This afternoon we will find out if the RBA agrees.

Are you expecting a rise in the official interest rate today? How would that affect you? Let us know via the comments section below.

Also read: How inflation can dent retirement savings

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