Taming the Inflation Dragon and Understanding why the Reserve Bank must increase Interest Rates

Don’t worry, I am not about to give you a lesson in economics. I am asked this question quite often and thought I would try and address it as simply as possible.

I can totally understand why most people are baffled as to why the Federal Reserve Bank of Australia raises interest rates when many home owners are struggling to pay the mortgage, have high petrol bills and groceries seem to be getting a lot more expensive.

Why do they have to inflict more pain? One reason is that the Reserve Bank’ is very concerned that inflation is above their target band of 2-3%pa. The latest inflation figure released revealed that the underlying inflation rate was 3.6%pa which was a shocker. The experts are saying that interest rates will have to rise again in March.

 

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