The Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points from 3.6 to 3.85 per cent yesterday.

But, it’s not all bad news for Australians.

The announcement comes after data released by the Australian Bureau of Statistics last week revealed the Consumer Price Index (CPI) rose another 1.4 per cent in the last quarter, from December to March.

CPI inflation now sits at 7 per cent annually. Simply put, this means the average cost of consumer goods rose 7 per cent from March 2022 to March 2023.


In 2021, the RBA said it wouldn’t hike its cash rate until 2024 after the COVID-19 lockdowns disrupted Australia’s economy, however, yesterday’s decision marks the eleventh RBA interest rate rise in the past year.

In a statement, Reserve Bank Governor Phillip Lowe attributed the RBA’s decision to CPI inflation which he said is “still too high”.

The RBA’s decision came as a shock to many economists. Associate Professor in the School of Business at the University of Wollongong, Alfredo Paloyo, said it was expected because inflation hasn’t come down to anywhere near the RBA’s 2-3 per cent CPI target.

“The demon of inflation is still very much rearing its head in the Australian economy,” A/Prof. Paloyo said.

“We may expect future increases from the RBA until inflation rates come down.”

RBA cash rate data from 2021 to now shows a significant interest rate hike in the past year compared to the pandemic period.


A/Prof. Paloyo said the RBA was trying to stimulate the economy by keeping interest rates down.

He said it was unsustainable to keep it at that level when the domestic and international markets started reopening.

Australia’s inflation problems have mostly arisen from disruption to supply and demand, heightened by the COVID-19 pandemic and the war in Ukraine.

A/Prof. Payolo said there are signs spending is coming down which indicates the RBA’s strategy is working.

“It is more expensive to buy things now and that induces people to spend less,” he said.

“In the future as interest rates go up and people start to have a larger share of their expenditure go to mortgage repayments for example, we can expect that’s going to compress their expenditure in other aspects of their budget.”

While the RBA’s announcement has not been welcomed by many people who are already struggling with the cost of living, A/Prof. Payolo said it won’t be detrimental for all Australians.

“If you are a mortgage holder – you borrowed money from the bank to buy a house – the increase in interest rates will affect you negatively because your interest repayments to the bank will increase,” he said.

“On the other hand, if the prices come down because of the interest rates increases other people will benefit in the sense the prices won’t go as high as it was before.”