Rate Hike Risks Hitting Wrong Target as Inflation Remains Stubborn

The Reserve Bank of Australia (RBA) is facing criticism for its decision to raise interest rates, which may have limited impact on inflation while hurting struggling mortgage holders.

The RBA has pointed to stubborn inflation as the reason for its run of rate increases, but there is a growing debate about how much extra impact further tightening would have on household spending from here.

This year's hikes have already put intense pressure on borrowers who bought homes at high prices seen after the pandemic began in 2020. However, inflation remains above the RBA's 2 to 3 percent target range, with underlying inflation over the year to July at 3.6 percent.

Richard Whitten from Finder said recent borrowers are under the most pressure due to higher mortgage repayments. He noted that older Australians who have paid off their homes and have money in term deposits or high-interest savings accounts are actually benefiting from rate hikes, which can increase deposit rates.

Experts warn that another rate hike this month could push the economy into recession, with HSBC chief economist Paul Bloxham saying it's difficult to see how the RBA can stay near full employment and still get inflation down to where it needs to be.