Reserve Bank Defends Gradual Interest Rate Hikes

0:00On March 2nd, here's the latest out of Sydney, the Reserve Bank of Australia has defended its gradual approach to raising interest rates to fight inflation. Internal modeling shows that more aggressive hikes, like those in other countries, would have left almost 200,000 more people unemployed, and added hundreds of dollars to monthly mortgage payments. Chief Economist Sarah Hunter shared this analysis in a speech in Norway. She compared Australia's cash rate path, which peaked at 4.35%, last November, after starting at 0.1% in early 2022, to higher peaks elsewhere, such as 5.5% in New Zealand, and 5.25% to 5.5% in the United States. Critics, including Shadow Treasurer Tim Wilson, argue the bank's dual mandate of 2% to 3% inflation, and full employment needs rethinking. To prioritize, price stability more. Higher rates to 5.5% by late 2023 would have sped up disinflation, but pushed unemployment

1:02to 5.3% by late 2025. On a $600,000 mortgage, repayments would have jumped nearly $500 a month, with underlying inflation dipping to 2.5% last year, before spiking again this year regardless. The modeling did not cover wider effects, like housing construction or investor activity. Markets now expect a hike to 4.1% soon, though geopolitical tensions might delay it. Meanwhile, concerns grow over investor lending, fueling inflation, and housing woes, with calls for tighter regulations to help first-time buyers. Appreciation to our sponsor for backing this episode. If phones in a pillow, simple idea, surprisingly addictive, S-O-L-I-S-O-L-P-L-O dot com.