- 52% of Australians have lost confidence in the RBA’s ability to fight inflation
- Two-thirds of Australian mortgage holders are now under financial stress
- Two more cash rate hikes appear to be likely by the end of the financial year
One in two Australians has lost confidence in the Government and Reserve Bank of Australia’s (RBA) ability to handle the cost of living crisis according to a new survey.
Canstar’s Consumer Pulse Report found that 52% of Australians don’t think the RBA will be able to manage runaway inflation, up from 44% three months ago.
The majority (54%) of Australians also believe that hiking interest rates is not the right way to tackle inflation with most believing consumers will continue to spend regardless of the higher borrowing costs.
Canstar’s finance expert, Steve Mickenbecker said, “Households paying off a loan on either their own house or on an investment property are right at the pointy end of interest rate increases.”
“They are rightly nervous about the Reserve Bank and Government’s ability to ease inflation and cost of living pressures.
“There is a sense of urgency added when you consider that around one-third of all home loan debt is on loans taken out over the last two years when property prices were high.”
Financial stress rising
The record increase in the cost of living is now also starting to put households under pressure with 68 per cent now under financial stress.
According to the survey, one in 10 mortgage holders and renters report having missed at least one mortgage repayment, rent instalment and/or other bill since rates started rising in April 2022.
On top of that, a further one in five respondents said they are worried about missing a payment in the near future.
Mickenbecker said, “It is worrying that so early after the first rate increase, some borrowers and renters are already missing payments on their debts, rent and other bills.”
“Interest rate increases deployed to slow spending impact consumers unevenly, with borrowers shouldering most of the burden. The result is that 68 per cent of mortgage holders are feeling financially stressed.
“Under-supply of rental properties also sees renters sharing the pain, with 65 per cent of that group reporting feeling financially stressed.”
No relief in sight
According to Mr Mickenbecker, interest rates are likely to stay at elevated levels which will continue to pressure households.
He said, “Unfortunately there will be no early relief, as a pause in rate increases will not mean imminent rate cuts. We are still five 0.25 percentage point interest rate increases short of the long-term average cash rate of 4.6 per cent, and shouldn’t be counting on interest rates returning to the lows of the last few years.”
“It is time to batten down the hatches for a long haul of higher rates that in reality are only just returning to a more normal level.”
He said in spite of the record pace of interest rate increases, inflation is sitting stubbornly at 7.4 per cent for the year to January 2023 and unemployment is at a low 3.7 per cent, giving the Reserve Bank little encouragement to hold back further rate increases.
He said, “With global recession risks looking a bit less threatening, the Reserve Bank won’t be as constrained by concern that it could be overshooting rate increases. But it will be watching for any negative indicators in the medium term.”
Mr Mickenbecker said another two cash rate hikes appear to be likely by the end of the financial year on the back of this week’s 0.25% increase.
