The brutal redistribution at the heart of the RBA's interest rate policy
The Reserve Bank of Australia is facing criticism over its interest rate policy, specifically regarding the 'cash flow channel' that impacts mortgage holders. While the RBA argues that rate hikes are necessary to curb inflation, critics point out that the policy creates a redistribution of wealth from borrowers to savers.
Why it matters
Understanding the mechanics of interest rate policy is crucial for households managing cost-of-living pressures and for evaluating the RBA's economic strategy.
The RBA has been playing down the importance of the cashflow channel as mortgage holders brace for another interest rate rise. ( ABC News: Matt Roberts )
Link copied Share Share article The Reserve Bank has been waging a public relations battle to convince Australians that interest rate policy doesn't primarily work to lower inflation by punishing borrowers.
Economists call this "the cash flow channel", where rising interest rates reduce the free cash households have to spend.
Less spending means less demand for goods and services, which in turn should mean less pressure for prices to rise.
It's the most visible channel by which interest rates affect households, at least for the third who have mortgages.
RBA governor Michele Bullock is defending policy around inflation. ( ABC News: John Gunn )
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2 other newsrooms covered this event. We read each version separately.
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