The Reserve Bank of Australia (RBA), Australia’s central bank, will hold its monthly interest rate setting meeting in Sydney today.
The RBA sets rates with the goal of achieving between 2% and 3% inflation per year. Higher rates are traditionally associated with encouraging savings while lower rates encourage investment. The RBA last changed interest rates to a historical low of 0.1%, a result of the COVID-19 pandemic and subsequent economic downturn.
While rising inflation make a gradual rise in the interest rate highly likely in the long-term, the RBA is unlikely to make any changes in its meeting today. While the increase in Australia’s consumer price index reached a record high of 3.9% in June 2021, the impact is minimal given lower figures during the pandemic. Much of the additional costs of inflation are concentrated on specific areas such as energy and fuel. While these are base goods, their price increase has yet to effect the whole Australian economy. Additionally, raising rates would increase the cost of servicing government debt, resulting in political pressure to keep rates low. The RBA is thus likely to wait until the effect of inflation is more widespread before deviating from the current rate.
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Cian is a Research Analyst and contributes to both Analysis and the Daily Brief. He specializes in Australian and European geopolitics with a particular interest in the strategic autonomy of the EU.