Alan Kohler on how AI's moving interest rates
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There's been another rate rise, thanks partly to Trump's war in Iran. But the conflict is not the only thing putting pressure on interest rates. Artificial intelligence is a factor too. Today the ABC's finance expert, Alan Kohler, on how AI impacts rates and why it might also be the reason they fall again. I'm Sam Hawley on Gadigal Land in Sydney. This is ABC News Daily.
Why are Australian interest rates rising, and how are mortgage holders affected?
Alan, rates have not been this high in Australia for fifteen years. The official cash rate is now four point six percent. And given the size of mortgages nowadays, that really hurts, doesn't it?
Well that's right. And and it's it's interesting because i it is true that, you know, we haven't seen four point six percent for fifteen years or something. But actually w interest rates are sort of getting back to normal. I mean the thing is that the the last few years, or particularly during the pandemic, interest rates were abnormal. And they came down before the pandemic to below two percent. For reasons that were also abnormal. And so the thing is that rates are getting back to where they usually are in the sort of mid fours. But the difference is that as you point out, that the repayments are much higher now because everyone's got more debt. Yes. So that a four point six percent cash rate, which means a kind of um six and a half to seven percent mortgage rate.
is a big deal. It's much harder than it was fifteen years ago.
Yeah, it really, really does hurt. And of course we've already had three rate hikes this year. This is the fourth. So that all really adds up.
That's right. And that's probably not the last. I mean the Reserve Bank is suggesting, hinting that there's more, you know, there's more work to do to get inflation down.
Today's increase in interest rates is needed to slow the economy and return inflation to target. Now I know this decision is difficult for households with a mortgage and businesses with loans. But high inflation hurts all Australians, especially the most vulnerable. Every household has seen how the price of everything has gone up in recent years. Pay packets don't go as far as they used to, and that's why we need to stop this high inflation.
Obviously they'll wait to see what happens with The CPI, which is due soon, and also other things. So, you know, I mean, they're they're always, as they say, data dependent, but there's a fair chance that there'll be another rate hike this year and The market is suggesting there's a fifty percent chance of a third rate hike. Early next year.
Well Ellen, we know Donald Trump's Iran war is driving up inflation.
How could AI and GDP growth influence the Reserve Bank’s interest rate decisions?
But what I want to consider with you is another culprit, and that is artificial intelligence. Now to explain how AI affects rates, let's start by looking at GDP, gross domestic product. Just remind me why the Reserve Bank cares about that.
Well is a as a rule of thumb the the Reserve Bank has a kind of a growth target in mind or a growth uh rate of the economy in mind. That it thinks the economy can do uh without causing inflation. And it calls that potential output. And the vernacular for that is speed limit. So economists talk about the economy's speed limit. And in the monetary policy statement that was published when they last met, there was a graph of What the Reserve Bank believes to have been the potential output. And a couple of decades ago it was above three percent and now It's below two percent, so about one point eight percent. Which is the speed limit. And the current growth rate of the economy is two point one percent. So a bit more than that.
So they wanna bring it down to the speed limit.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–1:26
2
Why are Australian interest rates rising, and how are mortgage holders affected?
1:26–3:47
3
How could AI and GDP growth influence the Reserve Bank’s interest rate decisions?
3:47–5:00
4
How does Australia’s falling productivity affect inflation and interest rates?
5:00–7:13
5
Can AI reverse Australia’s productivity slowdown?
7:13–8:50
6
How are AI agents and data centres changing the productivity outlook?
8:50–11:08
7
Could AI lower interest rates while data centres add to inflation?
11:08–12:47
8
How can business investment improve productivity if AI falls short?
12:47–15:24