Leading aggregator Finsure Group has warned that the Reserve Bank of Australia is getting closer to the “tipping point” with its increases to official interest rates, noting how the central bank would need to be careful about inflicting further pain on mortgage holders.
Finsure CEO Simon Bednar (pictured above) said the RBA needed to be more cautious about lifting the cash rate going forward or risk seriously denting consumer confidence and causing an economic slowdown.
“The RBA is getting nearer to the tipping point in its struggle to tame inflation, and I believe we are getting to the stage where too many more interest rate rises will change the tide and crush consumer confidence, which will lead to a dramatic slowing of the economy,” Bednar said.
The warning comes in the wake of the RBA’s decision to increase the official cash rate by 25 basis points to 3.6% on Tuesday, its 10th consecutive increase.
Bednar pointed to weaker GDP growth and decade-low building approvals as key indicators that the RBA needed to exercise caution in applying further rate hikes. Although most of the recent rate rises have not yet affected consumers’ pockets, he said lenders were already seeing a slight increase in arrears.
The RBA should “allow time for all the increases to flush through the system before delivering additional rate hikes, Bednar said, with customers having to make tough spending decisions to cover additional living and higher mortgage payments.
“It would be wise to seek advice from an experienced broker on managing your finances and also to look at home loan refinancing options,” Bednar said.
In the RBA board’s latest monetary policy decision, RBA governor Philip Lowe said the was to return inflation to target after it increased the official cash rate for the 10th consecutive time.
“High inflation makes life difficult for people and damages the functioning of the economy,” Lowe said. “And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”
The RBA is “seeking to return inflation to the 2-3% target range while keeping the economy on an even keel,” Lowe said, acknowledging that the “path to achieving a soft landing remains a narrow one.”
Earlier this week, research by Canstar showed that a majority of Australians believe that rate hikes won’t help curb consumer spending and high inflation, with 52% of the 3,100 respondents saying they do not feel confident that the RBA and the government could ease inflation and cost-of-living pressures this year.