RBA Raises Interest Rate Due to Businesses Passing on Cost Increases to Consumers


RBA minutes highlight concern over businesses passing inflation costs to consumers, prompting interest rate hike. Governor Bullock stresses positive impact of higher rates on some households.

RBA’s Decision to Increase Interest Rates

The Reserve Bank of Australia (RBA) decided to raise interest rates to 4.35 per cent on November 7 in response to growing signs of businesses passing on inflation costs to consumers, as highlighted in the minutes from the RBA’s November meeting. Concerns about these practices were a major factor in the decision to lift rates, aiming to reduce the risk of an unwelcome rise in inflation.

Impact on Inflation Expectations

The RBA noted that if sustained, the mindset among businesses of passing cost increases on to consumers could contribute to higher inflation. This observation reinforced the case for raising the cash rate target at the November meeting to mitigate the risk of further delays in returning inflation to the target range of 2 to 3 per cent.

Household Financial Pressure and Rate Pause Consideration

The RBA board discussed the implications of another rate hike on household finances, acknowledging that while some households were benefiting from rising house prices and savings buffers, a portion of households were experiencing financial pressure. Despite these concerns, the board ultimately agreed that a larger monetary policy response might be required if inflation turned out to be stronger than expected, emphasizing the necessity to adjust monetary policy to mitigate the increased risk of not achieving the inflation target.

Governor Bullock’s Remarks

RBA Governor Michele Bullock emphasized at the ASIC Annual Forum the positive impact higher interest rates were having on some households, stating that they were encouraging savings, especially for those with mortgages who were putting more into their offset accounts. Bullock, along with her predecessor Philip Lowe, has consistently cautioned about the risk posed by rising inflation expectations. The RBA remains resolute about returning inflation to the 2 to 3 per cent target and is closely monitoring incoming data for further monetary policy decisions.