The RBA is on the hustings today warning of the mortgage cliff:
While those relying on interest income – such as self-funded retirees – have seen their incomes boosted by higher interest rates over the past year, those with mortgages will be feeling the effects of the rise in interest rates. We understand that some people are finding the rise in interest rates difficult to manage and others will have to cut back on discretionary spending. However, higher interest rates are necessary to ensure that the current period of higher inflation and cost of living pressures does not persist too long. As the Governor has emphasised, the Reserve Bank Board is focused on returning inflation to target and establishing a more sustainable balance of demand and supply in the Australian economy.
We are currently revising our forecasts and will publish these at the end of next week, so we are not in a position to preview them yet. What we can say is that we think the peak in inflation was at the end of 2022 – at around 8 per cent – and that inflation will begin to ease over the course of this year.
Marion Kohler, Head of Economic Analysis Department, went on in parliament:
More than 800,000 households are set to suffer a major mortgage repayment shock this year as they shift off cheap fixed rate loans to substantially more expensive variable rates, the Reserve Bank says.
Kohler told a Senate cost of living committee on Wednesday that the bank estimated about $350bn worth of loans would roll off super cheap fixed rates to substantially higher variable rates this year, after the RBA hiked rates from 0.1 per cent in April to 3.1 per cent by December.
Ms Kohler said counting the number of affected borrowers was more difficult, but that a “very rough back of the envelope” calculation put the number of loan facilities rolling off fixed rates this year “in the high 800,000s”.
This is roughly 9% of all households that are about savagely chopped discretionary spending. Indeed, have already begun to:
Yesterday’s retail shocker, which was far worse than previous years, is the augury, not noise, especially when considering that inflation was still running at around 0.7%.
The volume implications for GDP are material as the year progresses.
