Interest Rates On Hold – it’s time to look for other ways to curb inflation

By Illawarra Flame advertiser Ian Pepper, of Ray White Helensburgh

The Reserve Bank of Australia (RBA) today announced its second pause in the current heavy rate rise cycle underway. This is welcome news to borrowers, many of whom are being stretched to their limit with higher mortgage repayments combined with higher living costs generally. The RBA cash rate will remain at 4.1% with the average home loan now anywhere from 5% to 6.5%.

The call to hold had divided economists and financial markets, however, most agree this is not the end of the rate-rising cycle. Most predict a rise in August and/or September and the consensus is two more rises from now to see a peak in the cash rate of 4.6%.

So, this will mean average home loan rates of 5.5% to 7%.  This will put an extraordinary burden on many mortgage holders, about one million of whom have never seen rates this high in their borrowing life.

Meanwhile, homeowners with no mortgage and/or those who are retired and living on savings are cheering all the way to the bank. For many years, they have earned low to no interest on their savings and are now swimming in unexpected interest income, putting more pressure on inflation.

So, does this seem fair to the one million mortgage holders who are told to stop spending? All while the rest of the market is earning more income and incentivised to spend, so rates keep going up.

This is the modern-day conundrum for our policy makers to resolve but, in the meantime, they have been happy to keep up the decades-old ratchet of raising interest rates to keep inflation down despite the narrowing group of people who suffer as a result.