Australia and Canada are both advanced economies with similar levels of wealth and development. They also share some key economic features like resource-dependent export sectors, high costs of living, and housing markets that are sensitive to interest rates. Given these similarities, an analysis of the distributional effects of interest rate policy in one country may shed light on impacts in the other.
The Reserve Bank of Australia (RBA) and Bank of Canada (BoC) recently raised interest rates again, increasing the cash rate to 3.35% and 4.5% respectively. Today, the RBA could hike again. (This article was written before the RBA’s latest increase & I got my weeks mixed up 😆). According to Guardian Australia, "The Reserve Bank's aggressive rate-hiking cycle has triggered the housing market's biggest decline in more than four decades." The RBA and BoC claim these rate hikes are necessary to keep inflation low and stable. However, closer examination shows that successive rate increases disproportionately impact workers and lower-income groups while benefiting the wealthy in both Australia and Canada. Women are especially vulnerable to the negative consequences.
For most Australians and Canadians, their home is their primary asset. Higher interest rates depress home values and increase mortgage payments, reducing wealth for the average homeowner. As women generally have lower incomes and less wealth than men, they are more vulnerable to interest rate-driven increases in housing costs and declines in home values. This can make homeownership more difficult to achieve or sustain for women.
As single parents, women head a disproportionate share of single-parent households. Single-parent households tend to be financially vulnerable, so interest rate hikes that increase housing and living costs can be especially difficult for single mothers to handle.
Women also tend to live longer than men, so they rely more on savings and fixed incomes in retirement. This makes women more susceptible to reduced purchasing power and living standards from rising inflation and interest rates. Their nest eggs don't go as far, creating hardship for elderly women.
Domestic violence can also make women more financially insecure and reliant on social services. When interest rate hikes lead to government spending cuts, it can reduce support for critical programs that aid vulnerable women. So women impacted by violence are also affected disproportionately by some consequences of anti-inflation monetary policy.
In contrast, the wealthy can benefit from quicker recovery of stock market values after rate increases. So the RBA and BoC's rate hikes exacerbate inequality in both countries, especially for women and other vulnerable groups. The RBA and BoC are aware of these consequences but continue to raise rates to exert more control over labor markets. Their concerns seem more ideological than evidence-based. There are alternative approaches to handling inflation, including recognizing that today's inflation stems more from supply-side issues and big businesses' pricing power, not just excessive wage demands. Yet the RBA and BoC stick to the conventional route of higher unemployment and lower wages to curb inflation. The real agenda behind the rate hikes seems to be deliberately handicapping workers, not just balancing growth and inflation. A more comprehensive view of inflation and balanced monetary approach are needed to avoid harmful outcomes, particularly for women and other marginalized groups.
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