Assessment of the economy and are there other monetary policy levers to Reserve Bank interest rises?

We all hear our Reserve Bank is trying to control inflation through reducing discretionary spending by increasing interest rates, which impacts small business and the 30% of households who have mortgages more than others

The first thing I don’t understand is using total spending to measure demand, surely, we are buying less goods and there is less demand, it is just that the average good is getting a lot more expensive - so is the measurement flawed?. Secondly, that with 400,000 coming in on visas then it seems to some degree we should also be looking at spending per item per capita not just total spending.

Surely other levers are available and could also be used? Please some financial expert tell me that these are not additional options that will reach a broader subset of the economy:

  • ensure higher deposit rates from banks or Australian bonds, so people are more inclined to save (and the banks seem to have enough profitability to support this)
  • increase superannuation contribution limits temporarily so more people are incentivised to put money away for longer (could it vary between say $20k and $40k pending how expansionary or contractionary we want the budget to be)?



Inflation is a nasty thing. It is not just about the prices for goods and services going up, but the purchasing power of money going down.

The RBA is tasked with keeping our currency stable in the world market, and keeping the price of borrowed money competitive. It sets a benchmark rate that influences many other interest rates. Not just home mortgages. But what Governments have to pay to attract bond investors. What banks have to pay to temporarily borrow to meet interbank settlements, and what investors expect to be paid for their loaned money.

The Governments of Australia, particularly the Federal one, are working at cross purposes to the RBA with fiscal policies that throw money into the economy, reduce revenue through tax cuts and tax deductions, and pork barrelling handouts, and using borrowed money to do this.

In past times, a Government running a deficit was considered shameful, now nobody seems to care.

As Paul Keating said, this is the recession we needed to have. A recession may be needed to kill this inflation period.

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