PHOTO: There is a a 40 per cent chance that the RBA will raise rates when it meets for its November Melbourne Cup Day. THE COURIER MAIL
New Reserve Bank Governor Michele Bullock Issues Stern Warning
The recent appointment of Michele Bullock as the new Reserve Bank governor has sent ripples of concern among homeowners. Bullock has unequivocally stated that she “will not hesitate” to raise interest rates once more if inflation remains unbridled.
The news comes as Bullock acknowledges the significant economic strain on low-income households, which have been doubly affected compared to their higher-income counterparts. However, she offers a glimmer of hope, emphasizing that low-income households and renters find themselves in a more favorable financial position than they did two years ago, despite soaring interest rates and the ongoing challenges of the cost of living.
In her address at a Commonwealth Bank conference, Bullock delved into the painful squeeze that inflation has imposed, particularly on heavily indebted household borrowers. As the central bank continued its unrelenting series of rate hikes, these borrowers found their cash flow drastically reduced due to higher interest costs. In fact, for these indebted households, the impact on cash flow has outpaced the rise in inflation itself.
Nonetheless, Bullock highlighted that the effects of elevated borrowing costs and persistent price pressures have not been uniform across the economy. Renters, on average, have seen their financial resources grow as their increased incomes outpaced the effects of high inflation and rising rents. Similarly, households unburdened by mortgage repayments have seen their savings rise since June 2021.
As geopolitical concerns, such as the escalating conflict between Hamas and Israel, threaten to keep oil prices and inflation elevated for an extended period, Bullock reiterated the central bank’s willingness to implement rate hikes if inflation remains stubbornly persistent.
Markets now ascribe a 40 per cent chance that the RBA will raise rates when it meets for its November Melbourne Cup Day (pictured) meeting
She asserted that the Reserve Bank would not rule out further cash rate increases, depending on inflation forecasts, a statement that may intensify financial stress for some households.
Bullock also revealed unsettling statistics, indicating that one in 20 households with variable rate mortgages struggles to cover their essential expenses. For households with loans amounting to four times their income, the situation is even more dire, with one in four unable to meet their financial obligations. These borrowers are compelled to make challenging financial decisions, including drawing on their savings, working additional hours, or sacrificing what were once considered essential expenses.
In extreme cases, these individuals may have to negotiate hardship programs with their lenders or consider selling their properties.
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With fresh inflation data for the September quarter set to be released soon, economists and investors will be keeping a close watch. Any result exceeding market expectations of a 1.1% increase could pave the way for further monetary tightening.
Market sentiment currently suggests a 40% probability that the RBA will raise rates during its upcoming Melbourne Cup Day meeting in November. However, Bullock acknowledged the potential consequences of the central bank’s aggressive monetary tightening measures, which typically take 12 to 18 months to manifest in the broader economy.
She emphasized, “The board is mindful that growth in demand and the rate of inflation have been moderating, and that there are long lags in the transmission of monetary policy.”
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