Warning against August rate rise as economy struggles

Critics of a rate rise warn that choking off demand further would push the economy into unnecessary pain. Households are already squeezed by high rents, energy bills, and mortgage repayments, and consumer confidence is near recession levels. A rate rise could tip many households over the edge, leading to a spike in mortgage arrears and even forced sales. The labour market, while still tight, is showing signs of cooling, and unemployment is expected to rise. Moreover, much of the current inflation is driven by supply-side factors such as oil prices and global conflicts, which are not responsive to higher interest rates. Raising rates to combat these external shocks is like using a hammer when a scalpel is needed. Business investment may also stall if borrowing costs rise further, slowing the economic growth that is already weak. The RBA risks over-tightening and causing a recession, which would be a blunt policy error. Grassroots groups and some economists argue for holding rates steady and waiting for supply-side relief, rather than pushing the economy into a downturn.