It happened again last week, the Reserve Bank of Australia (RBA) lifted interest rates.
And while that’s unsettling for many households, for investors, homeowners and aspiring homeowners, this latest RBA move isn’t a cause for panic.
Let me tell you why.
This latest rate hike was about inflation, not the Middle East
The conflict in the Middle East is clearly impacting fuel prices, and yes, those costs flow through to groceries, transport, utilities, and everyday living.
But higher interest rates don’t bring petrol prices down (and the RBA knows it).
Rates were lifted because inflation is running at 3.8%, up from 1.9% last year, and still above the RBA’s comfort range. Rest assured, this decision was about domestic inflation, not global politics.
The timing was a signal
The vote was 5 to 4; far from unanimous.
That suggests that several RBA board members wanted to wait.
The next RBA meeting is on May 5, just a week before the Federal Budget is handed down. By acting now, the RBA has put pressure on the Albanese Government to show spending restraint.
This matters, because government spending has grown around 6.5% per year since 2019, making inflation harder to bring under control.
In fact, budget spend per capita has increased by 37% in 20 years even after you factor in inflation!
It’s why the budget, as boring as it is to most Australians, really does matter, it affects our cost of living in more ways than simply how much tax we pay.
This is not a return to 2022-23
Some forecasts point to one or two more rate rises. Even if that happens, the cash rate would peak around 4.6%, which is only slightly above its previous high.
This is nothing like the rapid series of hikes we saw back in 2022–23.
Today’s rates are broadly normal by historical standards:
- 10-year average: 3.6%
- 20-year average: 5.1%
And, anyone borrowing since August 2022 has already been stress‑tested for rates at these levels.
This Interest rates are a blunt tool
By this I mean that interest rates don’t affect everyone equally.
Let’s drill down on this, so roughly:
- One‑third of Australians don’t have a mortgage and may actually earn more from higher rates.
- One‑third rent, this means their spending changes are driven more by housing supply than interest rates.
- One‑third have a mortgage and bear most of the impact.
What this means is that only a portion of households meaningfully reduce spending when rates rise; which limits how effective rates are as an inflation tool on their own.
There are likely better complements to rate hikes, including fiscal discipline, supply reform, and energy policy.
Don’t get me wrong, interest rates do matter, of course they do, but they shouldn’t dominate your thinking.
Rates move up and down over time. It’s best to plan for higher‑rate periods, manage cash flow carefully, and build buffers where possible.
Beyond that, my advice is to stay the course.
Successful investing is about consistency; it’s not about reacting to every RBA decision and going into panic mode.
Observe, adjust where necessary…and keep moving forward.
