Raising Interest Rates: Best way forward?

As anyone with a mortgage at present knows the Reserve Bank of Australia raised the interest rate on the official cash rate this week…. again.

So as we are all scratching our heads and wondering how high interest rates will go, as the Governor is sticking to his goal of reducing inflation down to what seems like a completely unachievable  goal with what appears to be the only means at the Governor disposal, it got me wondering…. surely there’s other ways of reducing inflation.

So the idea of raising interest rates is to discourage borrowing and spending. ( We will just forgot about all the encouragement to spend when Covid hit the globe to keep the economy from tanking). Reducing spending reduces the demand for goods and services thus reducing inflation.  I guess Covid is over now, and we all spent too much while we were all stuck at home baking Banana Bread????

Another option is reduce the money supply . The Government took on a stimulus policy when Covid struck and started handing out money increasing the supply of that money. (Just ignore what that does to the buying power of your dollar when this happens.  Maybe it wasn’t average Joe spending too much during Covid and causing the inflation)…… Anyway the Reserve bank can reduce supply of money circulating  which would help the inflation pressure. And the Government can also reduce spending, thus taking money out of the economy and therefore reducing demand for goods and services.  But lets be honest cutting more money out of the budget seems like a bad idea considering how bad our current Medicare health system is. 

So what is a positive way that the government could help in reducing inflation. 

Increasing productivity. This one would be my favourite idea but  this one doesn’t  get much mention in the mainstream media.

The government can play a significant role in increasing productivity by investing in infrastructure, promoting education and training, encouraging innovation, reducing regulatory burdens, improving access to finance, supporting entrepreneurship, and encouraging international trade. These policies can create a conducive environment for businesses to thrive and increase productivity, leading to long-term economic growth and prosperity. Doesn’t that sound a lot more positive then telling everyone who is currently hurting from these consistent and unexpected rate rises to curb their spending. Just imagine all the amazing environmentally conscious and innovative ideas that could come from this.

Chalkboard with Inflation written on in and arrow pointing up
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