Reserve Bank of Australia rate rise explained as Aussies battle cost-of-living crisis
Introduction
Many Australians are struggling with the rising cost of living, and recent hikes in the national interest rate have not helped this. However, a recent announcement from the Reserve Bank of Australia has given a sliver of hope to cash-strapped Aussies. This blog post examines what the Reserve Bank of Australia (RBA) is, what is happening with Australia’s interest rates, and what you should do in the face of the Reserve Bank’s latest announcement.
What is the Reserve Bank of Australia?
The ‘RBA’ refers to the Reserve Bank of Australia, and you may have been hearing a lot about them recently. The Reserve Bank has been given legal authority by Parliament to balance the Australian economy through what is termed monetary policy. It strives to achieve a targeted level of inflation, which is not too low in case it starts an inflation crisis, but not too high, which would slow development in the Australian economy and employment increases. This perfect middle number is around two to three percent in one financial year. Currently, the interest rate is over four percent. The bank also endeavours to make the Australian economy resilient, prints Australian money, and controls the nation’s foreign exchange reserves as well as gold. The Reserve Bank has both a national and international focus.
The RBA was created in 1960, and originated from the Commonwealth Bank of Australia that was established in 1911. The Federal Government owns the RBA, which was until recently headed by the RBA Governor Philip Lowe. Next week Michele Bullock will take charge. The RBA is controlled by the Payments System Board and the Reserve Bank Board. At the Reserve Bank Board meetings, the economic situation is reviewed, and the board comes to a decision regarding monetary policy and interest rates. The Reserve Bank meets monthly on the first Tuesday. They meet eleven times each year, as they do not meet in January. Following these monthly discussions, the RBA tells the public about the latest choices it has made regarding monetary policy.
What is going on with interest rates?
The Reserve Bank of Australia has been raising interest rates over the past year in a bid to fight inflation and curb spending as the cost-of-living rises worsens. This means that everything is now more expensive; from services, to housing prices, and to your weekly rent.
On Tuesday the fifth of September, the Reserve Bank announced that interest rates will remain at the current rate. At the moment, the national interest rate is 4.10 percent. The reason for this decision is so that the RBA can see what raising interest rates has done so far, with the Bank having increased this rate by four points already in around sixteen months. The inflation rate has reached the maximum level it’s predicted to rise to and is now decreasing. However, the current rate is still above what is good for the economy, and this is not likely to change anytime soon. Furthermore, according to some economists, the next quarter will likely see another increase in interest rates, which will hopefully be the last.
According to a statement issued today by the Reserve Bank, they plan to do anything that must be done in order to restore inflation to a more moderate level.
What should I do?
Interest rates remaining the same means everyday Australians have a reprieve for now. However, with another interest rise forecast, many will experience even greater financial struggles in the latter part of the year if this occurs. What does this mean for everyday Australians? Well, it may be a good idea to curb any excessive financial spending and put some money away for either emergencies or for spending later on in the year. In addition to this, reducing the amount of takeaway you buy, op-shopping or waiting for sales instead of indulging in ‘fast fashion’, and making a weekly budget to see how much you are really spending and what you can cut, are all good ideas to help you battle the rising cost of living.
With Christmas approaching at the same time the interest rate is predicted to rise, compared to past years a more frugal celebration may be had by many Australian families in 2023.
Conclusion
We know Australian’s are doing it tough, and we are here to help you through this challenging fiscal period.
AA Finance Solutions is committed to helping Aussies by giving helpful financial advice, providing the best loan for you, and supporting you through the process.
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