Australian families are being stretched to their limits as the cost of living skyrockets – but that’s no big deal, one bank boss says.
Homeowners took a huge blow last month when the Reserve Bank of Australia announced the first of many rate hikes in a desperate bid to curb inflation.
In early May, the RBA raised Australia’s official cash interest rate by 25 basis points from 0.1 percent to 0.35 percent — a more drastic increase than the 15 basis point increase most experts had forecast.
It was the first rate hike in 11 years — since November 2010 — but it won’t be the last, with market insiders expecting interest rates to continue rising steadily over the coming months.
Some experts are even bracing for a 2.5 percent rate hike by the end of 2022, senior economist at Nomura Australia and interest rate strategist Andrew Ticehurst recently said. The Daily Telegraphh they believe that rates will increase monthly until December, meaning we can expect a rate increase every month until Christmas.
The cash interest situation has raised concerns among countless homeowners who are already battling skyrocketing living costs, raising fears for many of significant mortgage stress.
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But in a new interview, one of Australia’s leading bank bosses claimed the coming series of rate hikes will be “affordable” for customers.
“Even at 1.5 percent, we’re still talking about very, very low interest rates,” said Chris de Bruin, Westpac’s CEO for consumer and investment banking. interview with nine newspapers.
“I think it’s important to recognize that we’ve been through a long period of ultra-low interest rates, so this is a natural recovery to some extent.
“It’s not that we expect a huge shock in interest rates. It will probably be stable and it will probably be at a point that is affordable for the vast majority of Australians.”
He said that while some “on the margins” may struggle, most households and businesses could manage rising interest rates, adding that “money would never be free forever.”
Mr. De Bruin’s comments stem from new research from Westpac that found that nearly two-thirds of small businesses believe the economy will continue to pick up in the next 12 months – although entrepreneurs also see the higher cost of living as the biggest challenge facing them. over the coming year, followed by inflation, interest rate hikes and Covid disruptions.
Aussies brace for more pain
According to a new survey of experts and economists, most are confident that the RBA will raise official cash rates again at its June meeting tomorrow.
In this month’s comparison site Finder’s RBA Cash Rate Survey, 86 percent expect a hike, while 28 percent think at least two hikes in cash rates will happen before the end of the year.
Graham Cooke, head of consumer research at Finder, said Australians were already feeling the pain and said there is a chance the June rate hike will be higher than expected – 40 basis points instead of 25.
“The economy is on a precipice and some families are really starting to struggle financially with the cost of living – and for people with a home loan it could get a lot worse,” he said.
“Raising cash interest rates is good news for savers and will help slow down Australia’s runaway property market, but those with a home loan are queuing up for some further cost hikes.”
But how bad will it get?
According to David Robertson of Bendigo Bank, the RBA will likely raise interest rates steadily over the next nine months in 25 basis point increments, until we approach a spot rate of about 2 percent.
“They will be careful not to go overboard with policy tightening and risk a hard landing, but inflation will rise further due to supply issues, so they have more work to do,” said Mr Robertson, with the vast majority of experts predicting that the peak will come. in 2023.
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