The highest rates in 15 years

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Carrington Clarke (0:48)

Well, the Reserve Bank has raised rates, bringing the cash rate to the highest it's been since 2011 And even though this latest hike doesn't come as a surprise, the sting will still be felt by borrowers throughout the country. So what does this latest hike mean for the Australian economy and how likely is it that we will see a fifth hike later this year? Welcome to ABC Business Daily.

I'm Carrington Clarke.

Michael Janda (1:18)

And I'm ABC News Business Editor Michael Janda.

Carrington Clarke (1:20)

Michael, thank you for joining me. We've got the decision hot off the presses. Now, let's start kind of from the bottom.

A unanimous decision this time around. Nine members of the board, all nine voting to hike interest rates. I think that would come as a surprise to some economists who, even though they predicted that we would see a hike, thought perhaps there would be a-

Michael Janda (1:40)

I certainly thought there might be a couple of dissenters. So, I mean, just to give people an idea, for example, the Treasury Secretary, Jenny Wilkinson, is on the RBA board as a voting member and obviously voted for a rate hike. And Ian Ross, who gave a speech last week, pointing out that there's no danger of a wage price spiral in Australia, which is one of the things that can embed inflation, he clearly also voted for a rate hike at the meeting. So even the more so-called dovish members of the RBA board saw the need to raise interest rates.

Carrington Clarke (2:15)

Well, interestingly, voting unanimously means that we actually know exactly how everyone voted. If there was one person who didn't vote with the group, then all of them could potentially hide behind the idea that they were the ones to say, put it on hold. But it's unanimous, everyone believed that we needed to hike rates now.

One of the things that struck me, which is early on in the statement accompanying this decision, was that they spoke about the liaison program that the RBA has, which allows them to look at kind of as close to real time as possible, dealing with companies, kind of getting access to their data, talking to individual companies about what's going on in their pricing decisions, what kind of pressures they're on under. And they say that they know through that program that companies are under price pressure. Some are already looking to hike prices. So we might know that people might have already experienced that, but also looking to hike prices even further, probably unwelcome news to people. But that's interesting to me because I think part of the reason some people suspected that we would see the RBA wait until the next meeting is that we would have more data for them to deal with. They would have had two extra bits of inflation data.

Michael Janda (3:26)

They're taking a risk with the rate hike today, as we've discussed before, because they do get inflation data tomorrow. Now, clearly, they think that risk is on the upside and the data, if anything, is going to show inflation is even more out of control.

Of course, if that data or the quarterly inflation data, which they think is much more reliable still and comes out in late October, if either of those come in way below expectations, the Reserve Bank could still look a bit silly to have jumped the gun and hiked rates now. But they clearly think the risks are all on the upside.

Carrington Clarke (3:59)

But I think this is interesting in that, yes, we all obviously look at those big data sets that come out via the Australian Bureau of Statistics. But obviously, the Reserve Bank thinks their liaison program is robust enough that it gives them this guidance in between data releases and that was enough to convince the members of this board, perhaps that obviously in connection and collaboration with the rest of the data that they've got, that they thought that they needed to go now. I think that is interesting.