RBA to gradually raise rates to avoid mortgage shock

“Higher debt-to-income ratios than in the past have made the housing market more sensitive to rising interest rates,” he said.

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“And a significant number of fixed-rate mortgages expiring in 2023 and rolled over at much higher mortgage rates will de facto act as monetary tightening. All of this will limit the amount by which the cash rate will have to increase.”

Bill Mitchell, an economics professor at Newcastle University, said the RBA was likely to be cautious with interest rate moves given the scale and precariousness of household debt.

Rate hikes would probably not be enough to alleviate inflationary pressures and could make them worse by increasing business costs.

“Given the current inflationary pressures are not driven by an explosion in demand, raising rates will have little impact, which will not stop the cartel from exploiting OPEC, or speeding up ships and trucks, nor to cure COVID and bring workers back. to work faster,” he said.

But some members of Scope warn that interest rates will approach long-term averages by at least 3%.

Former RBA economist and now Center for Independent Studies chief economist Peter Tulip believes the cash rate could peak at 5%.

Leading Independent Economist Steve Koukoulas estimates the cash rate could hit 3.5% late next year or early 2024, coinciding with unemployment between 3.5 and 4%.

University of Western Australia macroeconomist Jakob Madsen is the most hawkish on the Scope panel, saying that over the next five years the official exchange rate could reach 8%. The last time it was at this level was in the early 1990s when the RBA cut rates in response to the recession of that period.

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“One thing that people and economists forget is that the interest rate has never been lower than it is today,” he said.

“Low interest rates have so far been driven by the savings glut in Asia. However, the party is over. All over the world, people are getting older, especially East Asians who, until now, have been the big savers. They will now use their savings in retirement, which will drive up interest rates.

EY chief economist Jo Master said that while interest rates had bottomed, a rise was not a bad sign.

“It is important to remember that rising interest rates are a sign of a strong economy and that the first round of interest rate hikes will make monetary policy less stimulative – we are far from contraction parameters” , she said.

“We don’t expect higher interest rates to stop the economic recovery, but to make it more sustainable by avoiding overheating.”

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