RBA walking along interest rate tightrope, says Finsure

Central bank in danger of destroying consumer confidence

RBA walking along interest rate tightrope, says Finsure


By Jayden Fennell

Broker aggregator Finsure says the Reserve Bank of Australia (RBA) is managing a difficult balancing act when it comes to interest rates.

“If the RBA goes too hard with forecast increases in official rates in response to higher inflation, it runs the risk of smashing consumer confidence and economic growth,” said CEO Simon Bednar (pictured above left).

After the RBA this month increased rates from 0.01% to 0.35% in its first upward movement since 2010, Bednar said it was likely to hike the cash rate another 25 basis points in June, although it may wait until July to assess whether there would be a consumer response to the change of government.

With RBA Governor Philip Lowe warning that the cash rate could move to as high as 2.5% in what he described as the “normalisation of interest rates”, Bednar said the RBA needed to tread carefully as too many rate rises implemented too quickly could have a devastating impact on consumer confidence.

“They are certainly walking a tightrope with rates as it’s a balancing act tackling inflationary pressures and not harming consumer sentiment in the process,” Bednar said.

Bednar said he agreed with Commonwealth Bank CEO Matt Comyn’s view that inflation was close to peaking and rates might not be lifted as high as some economists had forecasted.

“Matt Comyn has been upbeat on the outlook for the Australian economy and he believes the RBA’s May rate rise is already starting to yield results because consumers are sensitive and responsive to changes in the cash rate,” he said.

Victorian brokerage Top Finance Specialists founder Faraz Hassan (pictured above right) said his concern was that a series of interest rate rises would affect household budgets.

“It will also mean it will be more expensive for clients to obtain a mortgage,” Hassan said. “It has never been a more important time to know your financial situation and to sit down with a broker as we are the key to help borrowers find the mortgage best suited to them.”

Hassan said brokers provide informed guidance and can make it easier for clients than ever before.

“We play an important role and can fill in the knowledge gaps to help clients make the best decision,” he said. “Partnering a client with the right loan can make all the difference with so much choice available. We can line up a better rate despite interest rates beginning to rise to help a client start their home loan journey and follow them through the life of the loan.”

Hassan said rising inflation would impact housing prices, with first home buyers and home renovators being impacted the most.

“It takes first home buyers a long time to save for their deposit, plus building and renovation costs are on the rise, so for those looking to renovate their existing homes, it means they will need more money than ever before to complete their project,” he said.

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