Overview of Alan Kohler on the rate hike and the RBA’s mistakes
This ABC News Daily segment (host Sam Hawley) features ABC finance expert Alan Kohler discussing the Reserve Bank of Australia’s surprise 0.25 percentage point cash rate increase (to 3.85%), why the RBA moved, and why Kohler believes last year’s three rate cuts were a policy mistake that worsened housing affordability. The conversation covers the RBA’s inflation forecasts, likely future moves, impacts on borrowers and house prices, and the trade-offs between controlling inflation and protecting jobs.
Key takeaways
- The RBA raised the cash rate by 0.25% to 3.85% — its first increase since 2023.
- RBA cited updated forecasts: core inflation for June was lifted from 3.2% to 3.7%, making further tightening necessary to return inflation to the bank’s target.
- RBA target (implicit midpoint) is 2.5% within a 2–3% range.
- December quarter: headline CPI 3.6% year-ended; underlying inflation 3.4%.
- Kohler’s view: cutting rates three times last year was likely a mistake — it fuelled a large rise in house prices and worsened housing affordability.
- House-price rises in the past year: national +8.6%; Brisbane +14.5%; Perth +16% (cited figures).
- Monetary policy’s transmission is strongly felt through the housing market; lower rates increase buying power and push prices up.
- Markets and many economists expect at least one more rate hike this year, possibly more, if inflation stays higher than the RBA wants.
- Interest-rate effects take time to work through the economy — more than six months, possibly up to 12 months — so policy decisions have lagged impacts.
What was argued and why
- Why the RBA hiked now: The board updated its inflation outlook upward and judged the cash rate “no longer at the right level” to restore price stability in a reasonable timeframe.
- Why Kohler calls last year’s cuts a mistake: The cuts occurred while inflation and unemployment were not dangerously high/low, and they boosted house prices substantially, undermining housing affordability efforts.
- Trade-offs: The RBA balances price stability and “full employment” (defined as the unemployment rate consistent with stable inflation). Raising rates reduces spending and increases unemployment modestly — the RBA expects unemployment to drift up from ~4% toward its estimate of neutral (around 4.4–4.5%).
Practical impact (who feels it and how)
- Mortgage holders: Higher repayments soon. Kohler gave an example: a $1 million loan could cost about $150 extra per month after the 0.25% hike (transcript figure).
- Prospective buyers: Cooling demand as repayments and borrowing costs rise; higher rates may reduce house-price growth or reverse some gains.
- Renters and buyers: Housing is a major component of cost-of-living pressure; higher house prices and construction costs contributed to CPI increases.
- Wider economy: Higher rates reduce household and business spending and can raise unemployment — the RBA accepts some rise in unemployment to rein in inflation.
Likely path ahead
- The RBA wants inflation back near 2.5%; if RBA’s June forecast (3.7%) proves accurate, further rate rises are probable.
- Economists/markets expect at least one more hike this year; some see the possibility of multiple hikes, depending on incoming data.
- Monetary policy effects are lagged — inflation and employment will continue to be monitored before the board decides future moves.
Notable quotes from Alan Kohler
- “I think it's a bit of an admission of a mistake by the RBA to have cut rates three times last year.”
- “The whole point of raising interest rates is to increase the interest repayments of both households and businesses so that households spend less...”
- “In my view housing is kind of a fundamental layer of the cost of living problem.”
Recommendations / items to watch (practical actions)
- For borrowers: Reassess budgets and repayment capacity; consider fixed-rate options or refinancing only after comparing total costs — plan for higher repayments.
- For prospective buyers: Expect some cooling in prices but watch migration and regional differences; rising rates reduce buying power.
- For observers: Follow upcoming CPI releases, unemployment data, and RBA statements — these determine the next moves.
- For policymakers: Kohler’s argument suggests better coordination between macroprudential/housing policies and monetary policy to avoid exacerbating affordability issues.
Bottom line
Alan Kohler views the RBA’s rate cuts last year as a policy error that helped inflate house prices, forcing the bank into a quicker-than-normal reversal. The RBA has raised rates to rein in inflation, aims for an effective 2.5% target, and may raise rates further if inflation remains above target — with notable consequences for mortgage holders and the housing market.