The RBA announced its second rate increase in two months, in the hopes it cools the surging inflation rate.
👉 Background: On the first Tuesday of every month (except Jan) the RBA decides what the official cash rate will be. To do that, it looks at things like how stable the currency is, what the unemployment rate is and the level of inflation.
👉 What happened: Yesterday, The RBA came out all-guns-blazin' and announced its second rate rise in two months. It raised the cash rate by 0.5% to 0.85%.
👉 What else: With inflation levels hitting 5.1% (and growing), this rate rise aims to dunk the Australian economy in an ice bath - to stop overheating.
💡 Increasing the cash rate is arguably the most valuable lever that the RBA has to control the economy.
💡 Banks borrow money from the RBA to lend out to consumers, like us. So when the RBA increases the cash rate to banks, it means that the banks will likely increase the interest rate on your loan. This makes it more expensive for all of us to borrow money and repay our debts.
💡 When borrowing becomes expensive, it also leads to less demand for goods. In other words, the economy goes from real hot... to freezing cold, and hopefully, cools inflation too. But like our dads would say, 'at least we're not at the 17.5% of the early nineties yet!'
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