👉 Background: The Reserve Bank of Australia (or RBA) meets on the first Tuesday of every month to do a little financial check on the Australian economy (except Jan). They look at the employment levels, the economic growth, the housing market. And of course inflation.

👉 What happened: Over the last 3 months of 2022, the inflation rate jumped to 7.8% - the highest in 32 years. Now, the RBA has raised rates by 0.25% meaning the cash rate will sit at 3.6%. It’s the tenth rate rise in a rowwww… because of that pesky inflation.

👉 What else: The Reserve Bank has a goal to return inflation to 2-3% so its tightening its monetary policy haaard. But, despite the RBA continuing to raise the cash rate, inflation ain’t budging yet…

What's the key learning?

💡Monetary policy is the the main way that the RBA tries to lower inflation and stabilise the economy. In other words, hiking the interest rate, making life more expensive and impacting the money in circulation.

💡But there are a number of other ways to potentially control inflation:

• Fiscal policy: This is where the government increases taxes or cuts down its own spending. By adopting one or both of these steps, there will be less money in circulation.
• Curbed spending: Forcing people to delay spending by paying themselves…only in the future. Not quite savings. not quite super. That means the money goes out of circulation today, but will still benefit them in the future.

💡Clearly, there are many ways that governments could control spending, but right now, it seems like the RBA is using interest rates as a blunt tool.