Preston (TIE)2/5/2023.The decision of the Reserve Bank of Australia to increase the cash rate target by 25 basis points to 3.85% was a surprising move that few financial experts predicted. The hike in interest rates is expected to put additional pressure on households already struggling with the cost of living. However, the RBA believes this step is necessary to control inflation, which though past its peak at 7%, is still too high and needs to return to the target range of 2-3%. The RBA has judged that a further increase in interest rates is required to achieve this objective. While some households have savings buffers, others are experiencing financial strain due to inflation. The RBA recognizes the need to keep the economy stable as inflation returns to the target range, but acknowledges that achieving a soft landing will be challenging. High inflation can have adverse effects on the economy and people’s lives, and if it becomes entrenched, reducing it later would require even higher interest rates and increased unemployment.
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