Another rate increase – enough is enough!

The Reserve Bank of Australia (RBA) has announced another jump in the cash rate to 3.6 per cent, an increase of 0.25 per cent. Interest rates have now been increased at 10 out of the last 10 RBA meetings. It’s not surprising that many people across many industries and walks of life are calling “ENOUGH IS ENOUGH!”

The RBA’s latest decision comes in spite of the Australian Bureau of Statistics (ABS) revealing January’s Consumer Price Index (CPI) to be 7.4 per cent, down 1 per cent on December’s results. According to Real Estate Institute of Australia president Hayden Groves, one of the staunchest industry critics of the central bank’s consistent increases, the latest CPI remains “below both the budget forecast and the RBA’s forecast".

Mr Groves insisted the RBA runs the risk of grinding Australia’s economy “to a halt” if its aggressive cash rate increasing cycle continues. Citing recent gross domestic product (GDP) data, he pointed out a “slowdown in momentum of the Australian economy".

A few other facts to point out:

• Lenders have passed on 100% of the rate increases so the average variable rate for owner occupiers will be about mid 5% and investors 6%
• Each 1% increase in the cash rate has meant borrowers can borrow $100,000 less than they could before. In summary, 3.5% in rates rises equates to $350,000 less borrowing power.
• Baby boomers comments that rates were 18% in their day and nothing compared to today are ill-informed as to the current debt levels and real estate prices – in short, the equivalent rate today of 6% is the same as 18% during their times.
• More rates rises are still expected, perhaps another 0.5% before they peak around mid year.
• Real estate price movements following movements in interest rates.

That’s enough from me for now on this subject and next week I’ll talk more about what it means for our area.

About the author

Ian Pepper has had a long and distinguished career as a finance and real estate professional. Originally trained as a Chartered Accountant in 1995, Ian worked in Sydney and London. He has an MBA from Macquarie Graduate School of Management and now sells real estate with Ray White Helensburgh. Ian also volunteers with local community groups including school P&Cs, sporting clubs and business chambers.

Ian is an advertiser in the Illawarra Flame.