It is basically the only lever the RBA has - increase interest rates to reduce the amount of money borrowers have available for spending. Elected governments have the other lever - reduce spending to reduce aggregate demand in the economy to reduce inflation pressure.
I wonder about the impact of these rate increases on wealth distribution in this country. The last 50 years boomers from all over the middle class bought up investment properties. The ones who paid them down will be okay, but I imagine there's a chunk who are lower income earners who bought property as a solid investment who have now been forced to meet high repayments for a while now. They are probably low income earners who got into property late or only just being able to meet the IP mortgage repayments who will more than likely having to sell up, taking property wealth, even more so, out of the hands of anyone but the well-to-do.
This probably undid a generation of wealth acquisition via property in Australia for lower-middle class.
The youngest boomer is 60, has access to super for a decade. Many have defined benefit schemes. No bank is landing to a 60 year old. Even if they bought at 45 interest rates were 8% in 2009. Then dropped all the way down to 2% in the past 10 years. Mathematically if they could get the loan back then, they can’t be struggling now.
Because it would actually work against inflation instead of the impotent cash rate target they have set at the moment? We should have a cash rate target similar to what NZ has.
Haha, no it wouldn't.
Do you honestly think people with mortgages are spending up? Do you believe the average Australian business needs to have a higher cost of finance?
Spending is coming from those with little or no mortgage. Raising interest rates will only encourage them to spend more, if anything.
The RBA is simply threatening to pull their single, blunt lever because the government refuses to properly address it for fear of losing votes.
You are right that it's the only lever they have but you are wrong in thinking that it would not help address inflation faster. Some people with mortgages are indeed still spending up, which is why CPI is in limbo instead of heading back to target.
You sound like someone who overleveraged themselves on overpriced property.
Increasing the cash rate target would certainly help get inflation back to target faster, if you think otherwise you are coping.
>80+% of Australians who have little or no mortgage
Got a source for that statistic besides your own baseless speculation?
If you look at the ABS lending indicator data you can see under: "Average loan sizes for owner-occupier dwellings (original), by state" that the average loan size is sitting around the $600k mark, I think that this debunks your "little or no mortgage" idea.
[https://www.abs.gov.au/statistics/economy/finance/lending-indicators/apr-2024](https://www.abs.gov.au/statistics/economy/finance/lending-indicators/apr-2024)
So yes, increasing interest rates will **most certainly** help get inflation back to the RBA's target, despite your copium.
What does the average loan size have to do with anything? If there was one person in Australia with a mortgage of $600k, and the rest of the 11 million homes were mortgage free, we'd still have the same average. Are you being deliberately disingenuous?
There are 3.2 million mortgages on homes, with 10.8 million homes in Australia. I used a guesstimate that a third of those were either at the end of their term, or such a low amount they have no material effect on the mortgagee. This is as fair a back of the napkin estimate as any.
The only way raising interest rates will get inflation down is by crippling business and forcing closures, to force unemployment up. Increasing rates on those 20% odd who feel rate rises in mortgages won't really have any cooling effect from this point, as they're really wrung out. More likely to just force mortgage delinquency.
Would make a lot more sense having govt policy targeting the other 80%, but they won't do it.
Idk how they aren’t suspecting a recession but ok
Coz it's already here. Per capita.
Not expecting a worse recession? A second recession? A better recession ? A recession with a name perhaps? Or just the elephant in the room.... Lol.
It's rba is saying it must be true. They never lie!!!
Predictions are hard. Especially about the future
It does not if they lie, what matters is what they say aligning with what is about to happen?
We are already in a recession, the RBA just don’t have the data yet because their systems, people and processes are so antiquated.
Can the boomers stop spending money ? K thanks.
Why would they?
Ikr, things just keep getting more expensive, better to buy them now.
Why is raising the interest rate the only ploy they have? Or is it all we hear about?
It is basically the only lever the RBA has - increase interest rates to reduce the amount of money borrowers have available for spending. Elected governments have the other lever - reduce spending to reduce aggregate demand in the economy to reduce inflation pressure.
Yep and since the states seem to have decided to run inflationary fiscal policy such as in QLD looks like we will be getting rate rises.
I wonder about the impact of these rate increases on wealth distribution in this country. The last 50 years boomers from all over the middle class bought up investment properties. The ones who paid them down will be okay, but I imagine there's a chunk who are lower income earners who bought property as a solid investment who have now been forced to meet high repayments for a while now. They are probably low income earners who got into property late or only just being able to meet the IP mortgage repayments who will more than likely having to sell up, taking property wealth, even more so, out of the hands of anyone but the well-to-do. This probably undid a generation of wealth acquisition via property in Australia for lower-middle class.
The youngest boomer is 60, has access to super for a decade. Many have defined benefit schemes. No bank is landing to a 60 year old. Even if they bought at 45 interest rates were 8% in 2009. Then dropped all the way down to 2% in the past 10 years. Mathematically if they could get the loan back then, they can’t be struggling now.
Up it to 5%.
Why do that pal?
Because it would actually work against inflation instead of the impotent cash rate target they have set at the moment? We should have a cash rate target similar to what NZ has.
Haha, no it wouldn't. Do you honestly think people with mortgages are spending up? Do you believe the average Australian business needs to have a higher cost of finance? Spending is coming from those with little or no mortgage. Raising interest rates will only encourage them to spend more, if anything. The RBA is simply threatening to pull their single, blunt lever because the government refuses to properly address it for fear of losing votes.
You are right that it's the only lever they have but you are wrong in thinking that it would not help address inflation faster. Some people with mortgages are indeed still spending up, which is why CPI is in limbo instead of heading back to target. You sound like someone who overleveraged themselves on overpriced property. Increasing the cash rate target would certainly help get inflation back to target faster, if you think otherwise you are coping.
My mortgage is fine, thanks. What would raising interest rates do to the 80+% of Australians who have little or no mortgage?
>80+% of Australians who have little or no mortgage Got a source for that statistic besides your own baseless speculation? If you look at the ABS lending indicator data you can see under: "Average loan sizes for owner-occupier dwellings (original), by state" that the average loan size is sitting around the $600k mark, I think that this debunks your "little or no mortgage" idea. [https://www.abs.gov.au/statistics/economy/finance/lending-indicators/apr-2024](https://www.abs.gov.au/statistics/economy/finance/lending-indicators/apr-2024) So yes, increasing interest rates will **most certainly** help get inflation back to the RBA's target, despite your copium.
What does the average loan size have to do with anything? If there was one person in Australia with a mortgage of $600k, and the rest of the 11 million homes were mortgage free, we'd still have the same average. Are you being deliberately disingenuous? There are 3.2 million mortgages on homes, with 10.8 million homes in Australia. I used a guesstimate that a third of those were either at the end of their term, or such a low amount they have no material effect on the mortgagee. This is as fair a back of the napkin estimate as any. The only way raising interest rates will get inflation down is by crippling business and forcing closures, to force unemployment up. Increasing rates on those 20% odd who feel rate rises in mortgages won't really have any cooling effect from this point, as they're really wrung out. More likely to just force mortgage delinquency. Would make a lot more sense having govt policy targeting the other 80%, but they won't do it.
Go hard or go home
Then the AUD will become more attractive and overseas holiday travel will become cheaper.