How can employers help with employees' financial woes amid operating constraints?
The Reserve Bank of Australia's (RBA) move to raise interest rates to a 15-year high of 4.6% will risk higher unemployment and further financial strain on both businesses and workers.
The RBA on Tuesday announced that it will hike interest rates for the fourth time this year, citing the need to ensure that "high inflation does not become embedded."
Australia's inflation rate is currently at 3.5%, down from the previous 3.8%, but remains above the RBA's target range of two to three per cent.
The RBA said the three increases in the cash rate target since the beginning of the year have tightened financial conditions, but the Monetary Policy Board believes that inflation is still "too high."
"The Board judged that, in light of recent developments, a further tightening in financial conditions is warranted to support a return of inflation to target in a reasonable period," the RBA said in its announcement.
Challenging for business, consumers
But the increase in interest rates means a challenging time for both businesses and consumers, according to Ivan Colhoun, chief economist at CreditorWatch.
"The further increase in interest rates will not be welcomed by Australian households or businesses already struggling with higher costs, very elevated fuel prices and now the highest interest rates in fifteen years," Colhoun said.
"However, neither are continuing quick increases in prices and costs likely to be welcome on top of all the increases already recorded. It's likely to continue to be a challenging time for both consumers and businesses given the very diverse forces impacting on the Australian economy."
The Australian Industry Group (Ai Group) has already warned that the hike will "distress" business owners and households.
"Interest rates have today hit a 15-year high with one and maybe two increases to come in the foreseeable future, which will distress business owners and households and will clearly further impact business and consumer confidence and spending," said Innes Willox, chief executive of Ai Group, in a statement.
"Coupled with the need to rein in government spending at federal and state levels, we have to act now to improve our prospects and prosperity."
James Keene, managing director for Asia-Pacific at Employment Hero, also said the RBA's decision will add further pressure to smaller businesses at a time when hiring momentum is already slowing.
Headcount at Australian businesses grew just 0.1% in August and 0.6% over the past three months, according to the latest Jobs Report from Employment Hero, which noted that this is the weakest quarterly growth in the past year.
Keene added that businesses are still contending with annual wage growth of 4.5%, including record part-time wage growth of 6.0%.
"As the RBA seeks to bring inflation under control, further pressure on borrowing costs could make businesses far more cautious about hiring and investment. In turn, jobseekers are left facing a less certain market," Keene said.
Unemployment rate may rise
The Australian Council of Trade Unions (ACTU) echoed these concerns about employment, warning that the interest rate hike will put thousands more jobs at risk.
Australia's unemployment rate went up to 4.6% in August, with the number of unemployed Australians rising to over 722,000.
The ACTU warned that raising interest rates would further drive unemployment, accusing the RBA of "walking away from its commitment to full employment."
"The Reserve Bank has been signalling it would abandon its dual employment mandate to fight inflation, and that is exactly the outcome it voted for today," said ACTU Secretary Melissa Donnelly.
"We already have 723,000 unemployed in the country, and that number shouldn't go any higher."
Addressing interest rate woes at work
The RBA has not ruled out the possibility of further increasing interest rates to curb inflation.
"The Board will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed," it said in its announcement.
The Board will also pay attention to the data and the evolving assessment of the outlook and risks to guide its decisions, according to the RBA.
"Monetary policy is well placed to respond to developments, and the Board is focused on its mandate to deliver price stability and full employment," it said.
How can employers help?
Rising interest rates in Australia are not just a budgeting issue for households but also a problem for workplaces, according to Reward Gateway.
It noted that HR and finance leaders will be caught between empathy for employees feeling financial strain and the constraints of operating costs.
"Interest rates may be outside your control, but how supported your people feel is not," it said on its website.
It suggested a robust employee discounts programme, which it said would create "repeated micro-wins" for employees.
"By directly supporting basic financial security needs, you reduce a key trigger of flight risk while reinforcing your reputation as an employer that shows up when it counts," it said.
"And it's not just about savings. Benefits like discounts can be a proven lever to enhance overall employee engagement by acting as the 'secret sauce' for programme adoption."
