Australia’s Prime Minister Scott Morrison has warned that interest rates could rise higher than necessary if the economic recovery is not managed properly.
A new national “Australian mortgage and rental affordability survey” has predicted dire consequences for the economy in case of an increase in interest rates.
The survey was commissioned by Australia’s peak finance and mortgage broker body, the Finance Brokers Association of Australia (FBAA), and conducted by respected research firm McCrindle.
It shows that two-thirds of Australians believe a full one percentage point rise in interest rates would put pressure on their financial position.
This rise would mean that the majority of Australian borrowers and renters would not be able to meet a mortgage or rent increase.
FBAA’s managing director Peter White AM says that Australians had possibly grown complacent after almost 11 years without seeing a rate rise.
“Many Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low. This survey is a wake up call and shows that even a small rise in rates – which is looking more likely next year with rising inflation – could be catastrophic for our nation.”
Mr White further adds that one per cent is not a large increase but it will likely happen soon.
“My message to Australians is that we must be better prepared.”
The housing market has soared in Australia and there is a reasonable chance will undergo a correction.
PM Morrison has also warned that recovery from the pandemic has to be secured otherwise people will see petrol, electricity, and interest rates go up.
He told reporters:
“That’s why economic management is so important now, as we come out of COVID, having secured our health through the pandemic, we now must secure the economic recover.”
RBA governor Philip Lowe believes that markets have “completely overreacted” to inflation data and the cash rate will not be increased for a couple of years.
“I still struggle with the scenario that rates would need to be raised next year.”
The cash-rate is currently at a record low 0.1 per cent and the central bank has lowered the rate 18 times in the last 11 years.
Managing cash-rate and economic recovery is important for PM Morrison as the next federal elections will be held before the end of May 2022, which is when the current senate term expires.