Australian families are being stretched to the limit as cost of living pressures skyrocket – but according to one bank boss, it’s no big deal.
Homeowners were dealt a massive blow last month when the Reserve Bank of Australia announced the first of many interest rate rises in a desperate bid to curb inflation.
In early May, the RBA lifted Australia’s official cash rate by 25 basis points to 0.35 per cent from 0.1 per cent – a more drastic rise than the 15 basis point hike most experts had predicted.
It marked the first rate rise in 11 years – since November 2010 – but will not be the last, with market insiders expecting rates to keep rising steadily in the months ahead.
In fact, some experts are bracing for interest rates to rise to 2.5 per cent by the end of 2022, with senior economist at Nomura Australia and rate strategist Andrew Ticehurst recently telling The Daily Telegraphh they believe rates will increase monthly until December, meaning we could be in for a rate rise every month until Christmas.
The cash rate situation has caused anxiety for countless homeowners who are already battling skyrocketing cost of living pressures, sparking fears over significant mortgage stress to come for many.
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But in a new interview, one of Australia’s leading banking bosses has claimed the upcoming series of rate rises will be “affordable” for customers.
“Even at 1.5 per cent we are still talking about very, very low interest rates,” Westpac’s chief executive of consumer and business banking, Chris de Bruin, said in an interview with Nine newspapers.
“I think the important thing to recognize is that we’ve been through a long period of ultra-low interest rates, so this is a natural reversion to some degree.
“It isn’t that we’re projecting a massive shock in interest rates. It’s likely to be steady and it’s likely to be at a point that’s affordable for the vast majority of Australians.”
He said while some “at the margin” may struggle, most households and businesses would be able to manage rising interest rates, adding that “the money was never going to be free forever”.
Mr de Bruin’s comments come amid new research by Westpac which found that nearly two thirds of small businesses believe the economy will rebound further in the next 12 months – although business owners also highlighted increased cost of living as the biggest challenge for them in the year ahead , followed by inflation, interest rate rises and Covid disruptions.
Aussies brace for more pain
According to a new survey of experts and economists, most are certain the RBA will raise the official cash rate again tomorrow during its June meeting.
In this month’s RBA Cash Rate Survey by comparison site Finder, 86 per cent are expecting a hike, while 28 per cent believe there will be at least two cash rate increases before the end of the year.
Graham Cooke, head of consumer research at Finder, said Australians were already feeling the pinch, and said there was a chance the June rate increase will be higher than expected – 40 basis points rather than 25.
“The economy is at a precipice and some families are really starting to struggle financially with the cost of living – and for those with a home loan, it could get a lot worse,” he said.
“Lifting the cash rate is good news for savers, and will help to slow Australia’s runaway property market, but those with a home loan are in line for several further cost increases.”
But just how bad will it get?
According to David Robertson of Bendigo Bank, the RBA is likely to increase rates in 25 basis point-increments steadily over the next nine months, until we approach a cash rate of around 2 per cent.
“They will be careful not to overshoot with policy tightening and risk a hard landing, but inflation will rise further due to supply issues so they have more work to do,” Mr Robertson said, with the vast majority of experts predicting the peak will hit in 2023.