BEHIND THE LATEST CASH RATE RISE
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* Australia's central bank, the Reserve Bank of Australia, increased interest rates by another 25 basis points to 3.6 per cent on Tuesday.
* The hike was the 10th in a row and brought the official cash rate to its highest level since May 2012.
* The RBA, like most other central banks around the world, has been lifting interest rates in response to high inflation that's well above its two-three per cent target range.
* Inflation hit 7.8 per cent in the December quarter, according to Australian Bureau of Statistics data, but there are signs it has passed its peak.
* The more volatile monthly index, which can swing around month to month, fell from 8.4 per cent in the 12 months to December to 7.4 per cent in the year to January.
* The RBA governor Philip Lowe says the war in Ukraine, COVID-19's interruption to global supply chains, and government and central bank support during the pandemic have been major contributors to surging inflation.
* Central banks have one main tool to control inflation - interest rates - and will lift them in times of high inflation to make lending more expensive for businesses and consumers, which is intended to moderate economic activity and bring inflation down.
* The most direct effect is on the cash flows of people with variable rate mortgages, who see their repayments go up as banks pass on the higher rates.
* Finder analysis shows the rate hiking cycle has added about $1000 more to the average home loan compared to April (before rates started climbing).
* Interest rate settings also affect the price of assets, business investment, firm pricing and wages, how people save and spend, and more.
* While inflation is unlikely to get any higher, the RBA governor says not hiking rates enough could result in inflation that remains elevated for a long time and people becoming accustomed to it, which would, in turn, prompt even more interest rate hikes and a likely uptick in employment.
* On the other hand, the RBA risks hiking interest rates too high and too fast and slowing the economy by more than is necessary to bring inflation down in a timely way.
* The RBA has softened its language and signalled a pause in interest rate hikes is getting closer.
* It will continue to monitor data - such as employment, inflation, retail spending and business conditions - ahead of the April meeting.
Australian Associated Press
