If RBA followed the evidence, it would hold rates. It probably won’t

The Reserve Bank meets this week to decide if it will lift, cut or hold interest rates.

The markets are predicting a rise.

Given the surging price of fuel due to the war in the Middle East, will the RBA inflict more pain on mortgage holders? If so, why?

If the Reserve Bank’s monetary policy board follows the evidence, it won’t hike rates. But that won’t change the fact that the central bank is still under pressure to do something about inflation.

Inflation was up even before the US and Israel attacked Iran. It was up as a result of temporary issues, like travel and accommodation.

In many ways, the higher oil and gas prices are already doing what an interest rate increase would do – preventing Australians spending their money on other things. And because almost all of our fuel is imported, the money and profits flow overseas. This drop in demand will already act as a brake on the pre-invasion inflation.

In some ways, skyrocketing fuel prices take the pressure off the RBA to lift rates this week.

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But some are arguing that the higher oil and gas........

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