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The Reserve Bank has raised interest rates for the fourth month in a row, raising its target rate by half a percentage point. Key points: RBA has raised interest rates by 0.5 percentage point The target cash rate has now increased by 1.75 percentage points since early May to 1.85 percent A cash rate increase since early May will add about $472 per month to a $500,000 loan payment The RBA has now raised its benchmark interest rate by 1.75 percentage points since the first rate hike in May, with the target rate at 1.85 percent. In his post-meeting statement, Reserve Bank Governor Philip Lowe said the latest rate hike is unlikely to be the last this year. “The board expects to take further steps in the process of normalizing monetary conditions over the next few months, but not on a predetermined path,” he said. “The size and timing of future rate hikes will be guided by incoming data and the board’s assessment of the inflation and labor market outlook. “The B...

As Mott points out, “in the previous cycle, households tended to default for three reasons: unemployment; family disorders or health problems”. But this cycle is likely to look very different, with unemployment unlikely to rise from historical lows. Instead, what worries Mott is the speed with which interest rates are rising, and how fast housing debt has accumulated in recent years. The inflation/tariff story is well known; Expectations for a 0.5 percent rate hike on Tuesday will bring rates to 1.85 percent, from just 0.35 percent in May, and ANZ expects rates to hit 3.35 percent by the end of the year. Warning from history But Mott also provides some interesting historical context for how debt has accumulated, looking at the last 10 housing cycles to study the potential impact of rising interest rates on credit growth. Particularly striking is the magnitude of the growth in mortgage commitments in the two years prior to this housing decline; The 70.1 percent increase in housing c...

Furthermore, only 1.9 percent of its loans have a debt-to-income ratio of six times, while Baum estimates these highly leveraged mortgages have accounted for a quarter of the major banks’ new mortgages in recent years. As interest rates rose sharply, it was these newer borrowers that Baum was most concerned about. “We’re going to see potentially disastrous outcomes on a human level on a scale I think most Australians have forgotten about, because we haven’t had a recession for 30 years,” he said from Tic:Toc’s headquarters in Adelaide. “We should have been more responsible five years ago. Because guess what? We will get a 10 percent increase, not a 25 percent increase in house prices. And the downside that we are now navigating will be much more manageable.” Baum said years of gradual easing of lending rules had allowed household debt to build up, giving policymakers and central banks limited flexibility as they tried to steer the economy through a...

Australians are feeling the pressure from inflation, but in some parts of the world inflation rates are almost 11 times higher, causing massive spikes in the prices of goods. Key points: Experts told the ABC developing countries are likely to be hit harder by inflation One expert says countries with cautious central banks have so far managed rising inflation better The situation in Australia is common in countries such as the US, South Korea, Germany and Canada According to the Australian Bureau of Statistics, the country’s inflation rate is just above 5 percent. By comparison, Turkey faces one of the highest inflation rates in the world, currently at around 54 percent, Fariborz Moshirian, director of the global finance institute at the University of New South Wales, told the ABC. Sri Lanka, where protests over food and fuel shortages have prompted the President to leave the country, has an inflation rate of nearly 55 percent. Brazil’s inflation is around 12 percent and in R...

Central banks in New Zealand and Korea have pushed ahead with further super-sized rate hikes as they seek to tame rampant inflation. Key points: Both the RBNZ and the Bank of Korea have raised interest rates by another 50 basis points New Zealand’s benchmark interest rate is now 2.5 percent and Korea’s 2.25 percent Many economists now expect that many central banks will halt rate hikes by the end of the year Both have been at the forefront of global central bank moves to dampen inflation, lifting interest rates from pandemic lows in the second half of 2021, months ahead of most other central banks, including the Reserve Bank of Australia (RBA), which was the first to move. enter. Possible. The Reserve Bank of New Zealand (RBNZ) increased its benchmark overnight cash rate target from 2 to 2.5 percent today, while the Bank of Korea (BoK) also raised interest rates by 50 basis points this morning to 2.25 percent. It is the third consecutive meeting that New Zealand’s cen...

Financially, times have been tough — and don’t expect to get much better anytime soon. Reserve Bank Governor Philip Lowe said a recession would not happen in Australia. Others think there’s a chance we could hit a brief recession sometime next year. But one thing is certain now: millions of Australians are hurting because of the rising cost of living. So, how can we prepare for the financially difficult times ahead? We asked three experts. First of all, you should know that you are not alone Before we get into it, National Debt Helpline financial adviser Deb Shroot says no matter how bad financial circumstances are, there’s always a choice. Even when things seem really bad. “If you talk to a financial advisor, there’s always a choice,” he said. Fundamentally, financial counselors are professionals who help those experiencing financial difficulties and their services are non-judgmental, free, independent and confidential. “The options may not...