Talk of a possible recession, both here in Australia and globally, refuses to go away.
The 2023–24 financial year continues to be dominated by talk of high interest rates dampening economic growth to the brink of, if not into, recession.
Global central banks have complex mandates and simple tools to achieve them. Our own Reserve Bank of Australia (RBA) aims to contribute to the stability of the currency, full employment and the economic prosperity and welfare of the Australian people. To achieve this, the main tool at its disposal is the interest rate lever.
The RBA decided decades ago that economic prosperity can best be achieved within an inflation range of 2–3%. Yet Australia remains significantly above this inflation target despite aggressive rate hikes. The RBA has lifted the cash rate 12 times in the current rate cycle – from a low of 0.1% to 4.1% at the time of writing – in an effort to bring us back to its target inflation range.
