Chalmers acknowledges 'harsh and heavy' consequences of rate rises
The festive season is off to a damp start for millions of Australians after the Reserve Bank of Australia (RBA) raised interest rates for the eighth consecutive time in 2022.
Rates rose by 25 basis points to stand at 3.1%, the highest in a decade.
According to the RBA, tackling inflation remained its top priority, with a focus to bring down levels from 6.9% currently to 2%-3% over time.
It expected rates to continue to increase over the period ahead, “but it is not on a pre-set course.” With forecasts for growth of around 1.5% in 2023 and 2024, the RBA reiterated it was seeking “to keep the economy on an even keel.”
Addressing reporters after the announcement, Treasurer Jim Chalmers stated there were "harsh and heavy consequences" of these hikes on household budgets and mortgage payments, but "the full impact of these rate rises is still to be felt in the economy."
This was echoed by Russel Chesler, head of investments and capital markets at VanEck, agreed the rates and any future ones next year were already having a significant impact on those with a mortgage.
“A large group of borrowers have been relatively unscathed by the RBA’s rate hikes to date because they have fixed rate mortgages, but this is about to change. Around two-thirds of fixed rate loans taken out during the pandemic will mature during 2023, with another third maturing in 2024.
“This means almost $500 billion of loans will start to attract rates that are 3%-4% above what they are currently paying, effectively doubling property owners mortgage repayments. The post-pandemic purchasing boom could come to an abrupt halt in 2023.”
CreditorWatch chief economist, Anneke Thompson, also commented on the “undeniable financial pressure” that such hikes continued to place on Australian households which could weaken consumer confidence.
“Combined with the Budget’s forecast rising prices on everyday goods, housing and energy, and lacklustre wages growth, this latest increase in the cash rate all but guarantees consumer confidence will weaken as we enter the busy Christmas retail period,” Thompson said.
Most economists had predicted the quarter point increase to take place this month.
“The RBA delivered a 25bps hike at their December meeting, continuing the smaller magnitude of hikes they pivoted to at the October meeting. The market had been pricing a reasonable probability of the RBA pausing and holding rates unchanged following the lower-than-expected October inflation print last week,” said Harvey Bradley, portfolio manager at Insight Investment.
“We think it is likely that the RBA will continue to raise rates at coming meetings given the level of inflation in the economy and ongoing tightness in the labour market. However, their recent commentary has clearly signalled a desire to balance the growth and inflation outlook from here and should the activity data continue to roll over it is likely they will pause sooner rather than later.”
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Rhea Nath
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