Raising interest rates would do little to help the Reserve Bank’s battle against inflation and could even hamper these efforts by giving some households more money to spend, the chief investment officer of $140 billion fund UniSuper warns.
Even so, there are also some RBA-watchers who maintain the central bank should raise rates further to counter inflation, which accelerated to 3.8 per cent in the year to June, according toPearce, in contrast, is unconvinced that interest rates are the best weapon for fighting inflation at this point in the economic cycle. He said the people who were most likely to tighten spending further from higher interest rates had already endured enough.
Pearce maintained that using fiscal policy – government taxing and spending through the budget – would be a more effective way to dampen inflationary pressure in the economy.“Prove to me the direct connection between hiking rates 25 to 50 basis points more and a slowdown in inflation,” Pearce said. As well as affecting households, interest rates also remain a key driver of market sentiment, with Wall Street and the ASX last week hittingLoading
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