How Effective Is Raising Interest Rates to Reduce Inflation?

Interest rate hikes are designed to take money out of the economy. But when you're having that kind of dramatic impact over half of all Australian households, the effects could be quite devastating on Australian business. The RBA is at the moment raising interest rates. That's their main tool. Is it effective? Well, that depends on what kind of inflation you have. Increasing interest rates is not going to lower the world price of oil. It's not going to suddenly make lettuces or potatoes or whatever has been flooded out appear in the market and reduce the price. And so that will reduce inflation.