Interest rate cuts might have less impact than thought

Australians cut their spending only by a relatively small amount in the latest rate-hiking cycle. Photo: Steven Saphore/AAP PHOTOS

Changes to interest rates could have less of an impact on household spending than traditionally thought, which means the Reserve Bank might have to hike or cut harder to achieve its aims.

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Despite the RBA hiking interest rates in one of its sharpest tightening cycles in decades after the COVID-19 pandemic, Australians only trimmed their spending by a relatively small amount, the e61 Institute found in a research paper released on Friday.

That is because