Australia politics live updates: RBA to decide on historic interest rise amid high inflation

It’s been a long time since the Reserve Bank of Australia changed its cash rate target. Its most recent move was to lower it from 0.25% to its record low 0.1% in November 2020. And it’s more than a decade – November 2010 – since the central bank raised the cash rate.

Back then, it went up 25 basis points (another way of saying 0.25 percentage points) to 4.75%. That’s partly why today feels a bit novel.

The other, more pressing drama, of course, is that there’s an election campaign underway and a rate rise today would be more than a bit embarrassing for the government.

The last time we had such an RBA “intervention” was in November 2007, and the rate lift from 6.25% to 6.75% did no favours for John Howard, who went on to lose both his seat and the election.

We look here at how the board decision is made and why we should not be entirely surprised if the RBA did NOT raise the cash rate today.

Related: Interest rate rise: who makes the high-stakes decision and how does it get made?

Warwick McKibbin, an Australian National University professor and former RBA board member, tells us this morning a few extra interesting details. In his time, members would get the RBA’s briefing on the Friday, giving them the whole weekend to mull their move.

Assuming the same practice applies today, the nine board members would have had days of media hype more or less demanding a rate rise after the March quarter CPI shock (5.1% for the headline, 3.7% for underlying inflation, both the highest in two decades-plus.) Like a jury, could they have shut it out?

McKibbin, unlike any of the current board members other than the two from the RBA, was a macroeconomic expert, and brought his own model to the meetings. (He also used to chat to the RBA staff on the sly before meetings until that bit of enterprising research was shut down.)

Anyway, McKibbin reckons that even though the RBA has not signalled any change of direction – which they normally would have, had they not been in some sort of witness protection since 22 March – they should move today.

He notes the US is about six months ahead of the RBA in terms of countering inflationary pressure. Now the US Federal Reserve (effectively their central bank) has been apologising for acting too late as inflation has soared.

As Scott Morrison has been happy to highlight, the US CPI has soared to 8.5%, much higher than Australia’s. (The underlying rate is at about 5%, or 2.5 times the Fed’s 2% target.)

In other words, McKibbin says the RBA should raise rates today: better to be safe than sorry.