The Reserve Bank’s behaviour last week can only be described as bizarre. It’s a sign that it’s lost its bearings and isn’t sure what’s happe...

The Reserve Bank’s behaviour last week can only be described as bizarre. It’s a sign that it’s lost its bearings and isn’t sure what’s happening in the economy or where it’s headed. What has caused its befuddlement? Our unexpected return to near full employment.

  • JoshiOP
    6·
    3 days ago

    Because the interest rate has a direct impact on quality of life. Everything else being equal a lower interest rate is better.

    • Dave.
      6·
      2 days ago

      Everything else is rarely equal though. As can be evidenced by decades of >5% rates.

      Currently interest rates affect QOL so much because everyone is mortgaged up to their eyeballs. That isn’t normal but unfortunately the policies that have promoted that are beyond the RBAs scope.

      So yes , lower interest rates help QOL but they also promote inflation and that’s a much harder beast to reign in once it gets up and rolling - for example, we’re never going to get back the cumulative 25% increase in the cost of living we’ve been hit with in the last 4 years or so.

      And calling the RBAs response “bizarre” - when we are in a period where caution might be a good idea due to contradictory economic indicators - just seems a bit hyperbolic.

      • JoshiOP
        2·
        2 days ago

        You’ve laid out the RBA position fairly enough.

        Part of the subtext of this piece is an ongoing debate, historically through the second half of the 20th century and into the GFC it seems that countries that adopt excessively tight monetary and fiscal policy have a lower quality of life long term in a way that is difficult to reverse, whereas the long term consequences of a slower, or even labile, return to target levels of inflation is likely nothing.

        This is something that professional economists disagree on and I abandoned economics the second I got my bachelor’s but the historical evidence is compelling.

    • No1
      1·
      2 days ago

      Everything else being equal a lower interest rate is better.

      Not for everyone. Eg, self funded retirees might prefer higher interest rates as they hold a higher portion of their wealth in cash and interest bearing securities etc. Lower interest rates reduce their income and so, quality of life.

      Oh, and banks and their shareholders would definitely prefer higher interest rates too.