Originally published in The Guardian on February 9, 2023

The signs are already evident that household consumption is falling despite most mortgage holders yet to feel the full effects of the rate rises. The Reserve Bank however believes more pain is needed.

On Tuesday the Reserve Bank lifted the cash rate to 3.35%, making for a total increase of 325 basis points since May last year. That rise is the fastest since the rises prior to the 1990s recession. And yet, as policy director Greg Jericho, notes in his Guardian Australia column, the Reserve Bank still think more is needed.

The Governor’s statement concluded that “the Board expects that further increases in interest rates will be needed over the months ahead”. The use of the plural “increases” was a change from the language used in December. This is despite the bank and most economists acknowledging that inflation peaked in December and that global inflation is now falling.

The RBA acknowledges that the full impact of the rate rises has yet to flow through, and how remains wedded to the policy that the economy is running too hot, despite wage growth likely still in the low 3% range. Most households have yet to feel the impact of around a third of the total amount of the rate rises thus far. With more rate rises forecast to come, that suggests a further increase of around $400 a month in mortgage repayments on a $500,000 loan even before any more rate rises occur. That would suggest a 45% increase in mortgage repayments since April.

This drastic raising in rates will serve to slow an already slowing economy. The December quarter retail trade figures showed that retail turnover volume was down for the fourth straight quarter, and forecasts for GDP growth estimate very weak growth for two years.

That the Reserve Bank continue to hike rates without pause suggests a lack of faith in its biggest weapon to reduce inflation, and also that it can finesse rate rises and economic growth. There is no need to keep hurting households without relief or pause – especially given so much of the rate rises remain yet to be felt.

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