When new Reserve Bank of Australia (RBA) governor Michelle Bullock announced the latest interest rate hike on Melbourne Cup Day on November 7 she repeated a familiar script.
“Returning inflation to target within a reasonable timeframe remains the Board’s priority. High inflation makes life difficult for everyone and damages the functioning of the economy.
“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” she said.
This gives the impression the hike is in everyone’s interest.
But there were more losers than winners — as at the Flemington Racecourse.
For the majority of working class families, the decision spelt higher mortgage replacements, higher rents, a further erosion of real incomes and no relief from rising costs of living.
Just two days later, new data released by the Organisation for Economic Co-operation and Development (OECD) showed that Australian households suffered the largest fall in real living standards (-5.1% over the year to June) of any advanced economy over the past year, the Australian Financial Review reported.
This follows a 4.5% fall in real wages over the previous year.
However, for many big corporations the RBA decision was not bad news at all.
Not only did it show that the RBA was doing its job of protecting their ability to plan and invest, it was also making sure the main burden of “fighting inflation” would continue to fall on the exploited majority.
The RBA’s decision also leaves fossil fuel companies free to continue to reap super profit from high fuel prices, as can the major supermarket chains.
For the biggest banks — who were already celebrating their huge $32 billion combined profit — there was an extra bonus courtesy of the RBA.
As Alan Kohler explained on ABC on November 13, the RBA announced not only that it would charge banks an extra 0.25% on its overnight cash loans to them but that it would pay them an extra 0.25% on their deposits with the RBA.
The RBA used to make money on this sort of deal in the past, but since the COVID-19 pandemic, the banks’ deposits in the RBA have blown out from around $25 billion to $362.5 billion.
This is because during the pandemic the RBA gave the banks a big pile of cash to pump up the economy, but much of that was invested by the banks into the RBA.
Kohler went on to explain that the RBA decision not only means that the banks will charge struggling home mortgage owners higher repayments, they will also get paid nearly an extra billion dollars in interest from the publicly-owned RBA.
Once again the big banks are big winners!
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