Daniel James

The Reserve Bank has raised interest rates again.

The cash rate is now 4.35% after the third rate hike in a row.

For Australians already stretched by the cost of living, it means another hit to mortgage repayments, rents and household budgets.

And while the decision was widely expected, the reason behind it is more complicated.

Some economists are calling it the Hormuz hike, a response to global oil prices, the war in Iran and fears inflation could skyrocket.

I'm Daniel James, and you're listening to 7am.

Today, economist and co-CEO of the Australia Institute, Dr Richard Dennis, on why the Reserve Bank is making Australians pay more to contain inflation and the risk that it goes too far.

It's Wednesday, May 6th.

Richard, thanks for joining us again.

This is a brutal decision for Australians already struggling in a cost of living crisis and straining under the weight of the last two interest rate hikes.

What was the RBA's reasoning for this decision?

So why has she done it?

What reasoning can you, I guess, backward engineer in terms of why this decision's been made?

After the last interest rate hike, Michelle Bullock spent a lot of time talking about inflation expectations drifting up, and she spoke about it again at her press conference.

Can you explain why that's a problem when it comes to inflation?

Yeah, that's what I found quite confusing as a bit of a punter here, Richard.

What does getting ahead of it mean in terms of expectations?

Richard, in the last year, we've had three rate cuts and now three rate hikes, which is the fastest RBA easing to tightening in 15 years.

What do we read into that?

If we look at the cash rate scene globally, I mean, Australia is the outlier here.