More rate hikes aren’t the solution – survey

The research findings were released ahead of RBA's cash rate decision

More rate hikes aren’t the solution – survey


By Mina Martin

The majority of Australians believed rate hikes weren’t the solution to cutting consumer spending and curbing inflation, new Canstar research showed.

The research, released ahead of the Reserve Bank’s March cash rate decision today, found that of the more than 3,100 Australians polled, 52% were not confident RBA and the government would be able to ease inflation and the cost-of-living pressures this year.

The majority of the respondents also didn’t believe higher interest rates will help to curb consumer spending, with 54% saying it’s not the solution as people will continue to spend and that rising interest rates are too much of a burden for people to cope with.

“Households paying off a loan on either their own house or on an investment property are right at the pointy end of interest rate increases,” said Steve Mickenbecker, Canstar’s finance expert. “They are rightly nervous about the Reserve Bank and Government’s ability to ease inflation and cost-of-living pressures. There is a sense of urgency added when you consider that around one-third of all home loan debt is on loans taken out over the last two years when property prices were high. Values are now being whittled back and disappearing equity is piling on further pressure.”

Despite RBA’s aggressive monetary policy tightening, inflation is sitting stubbornly at 7.4% for the year to January and unemployment is at a low 3.7%, giving the central bank little encouragement to hold back further rate hikes.

“With global recession risks looking a bit less threatening, the Reserve Bank won’t be as constrained by concern that it could be overshooting rate increases,” Mickenbecker said. “But it will be watching for any negative indicators in the medium term. A 0.25-percentage-point rate increase in March looks inevitable, with another two cash rate rises likely by the end of the financial year.”

Canstar analysis showed that another 0.25% cash rate rise in March will see mortgage repayments on a $500,000 loan over 30 years increase from $2,103 in April to $3,154 per month. That meant an extra $1,051 per month or $12,612 per year for borrowers.

If the cash rate lifts to a forecast 4.1% this year, repayments on this same loan will jump to $3,320 per month, which means an additional $1,217 each month or $14,604 per year.

The same Canstar research found that 68% of mortgage holders and 65% of renters are under financial stress, with one in 10 having missed at least one mortgage repayment, rent instalment, and/or other bill since rates started rising in May 2022, while one in five reports worrying about missing a payment in the near future.

“Unfortunately, there will be no early relief, as a pause in rate increases will not mean imminent rate cuts,” Mickenbecker said. “We are still five 0.25-percentage-point interest rate increases short of the long-term average cash rate of 4.6% and shouldn’t be counting on interest rates returning to the lows of the last few years.”

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