Bank governor Philip Lowe said the board expected to take further steps as it worked to “normalise” monetary conditions over the months ahead,but was “not on a pre-set path”. Its aim is to get inflation back to its target band without hurting the overall economy.
“The board places a high priority on the return of inflation to the 2 to 3 per cent range over time while keeping the economy on an even keel,” he said.
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Future interest rate decisions will be guided by incoming data,Lowe said,including new inflation and employment figures. At its next meeting in September the board will have the latest wages data,which will be published in the next fortnight.
Treasurer Jim Chalmers said while Australians knew the rate rise was coming,it didn’t make it any easier for them.
“It’s not a shock to anybody but it will sting. Families will now have to make more hard decisions about how to balance the household budget in the face of other pressures like higher grocery prices,and higher car prices and the cost of other essentials,” he told parliament.
AMP Capital chief economist Shane Oliver,who is tipping the cash rate to peak at 2.6 per cent,said rates should be falling in 2023.
“By late next year,rates are likely to be falling. This implies a slowing in the pace of rate hikes ahead which should help head off worst-case scenarios for the property market and the economy,” he said.
Financial markets,which accurately predicted the RBA’s lift interest rates,now believe the cash rate will peak at 3.2 per cent by March next year. Within six months,markets expect the RBA to have delivered at least one rate cut in a bid to support the economy.
HSBC Australia chief economist Paul Bloxham said given the RBA’s forecasts for a lift in unemployment,the bank was likely to start slowing the rate of interest rate rises to a quarter percentage point at coming meetings.
“In our view,the cooling housing market,weakening consumer spending and global downturn are set to worsen in the next few months,which we expect will see the RBA pivot to smaller hikes from here before stopping in November,as the local labour market turns and inflation peaks,” he said.
Head of Deloitte Access Economics Philip Pradeep said against the current backdrop of a slowing global economy it was “time for some caution” from the RBA.
“The next step by the bank should be clearly data-driven on the extent of domestic inflationary pressures,” he said. “After four in a row and three for 50,the risks are slowly shifting to going too far,too fast.”
There are already signs the RBA’s actions are starting to bite.
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Lending data from the Australian Bureau of Statistics showed a 3.3 per cent fall in loans to people buying a house and a 6.3 per cent fall in mortgages to investors.
The hardest hit have been first-time buyers,with loans to them down 10 per cent in June and by almost 30 per cent over the past 12 months.
Homeowners with about $200 billion in mortgages - about 10 per cent of the Australian home loan market - would be at risk of falling behind on their repayments if official interest rates climb to 3 per cent,a leading analyst has warned.
Barrenjoey banking analyst Jonathan Mott on Tuesday said if the cash rate reached that level,those who had borrowed at or near their capacity were “likely to become delinquent” as their financial situation would reach the limits of the stress tests undertaken by banks.
“For the first time in several decades we are likely to see a wave of fully employed borrowers falling into delinquency as they simply can’t make ends meet,” he said in a note.
Banks and the RBA have said most customers are in a strong position to absorb higher interest rates,citing high household savings,more cautious bank lending standards of recent years,and the low level of unemployment.
Portfolio manager at Milford Asset Management,Will Curtayne,said the $200 billion of at-risk loans appeared reasonable,though he added it would be some time before larger numbers of people started struggling with repayments.
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“Bad debts will go up in the next year,it’s just a question of how much. We are coming off an extremely low point,” Curtayne said.
While the hike in interest rates is an added stress for mortgage holders,CommSec chief economist Craig James said it was good news for savers.
“If the 50 basis point rate is fully passed on,it will add more than $6.4 billion to household incomes – providing a welcome boost especially to the incomes of retirees,” he said.
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