Hundreds of thousands of Australian households will be put under further financial pressure as they roll off to more expensive variable rates this year, the Reserve Bank of Australia has predicted.
Marion Kohler, RBA head of economic analysis department, said before the senate select committee on the cost-of-living that an estimated $350 billion worth of loans would shift from fixed to variable rates this year.
According to Kohler’s “very rough” estimate, based on the “back of an envelope” calculation, the cash rate hikes, which climbed from 0.1% in April to 3.1% in December, would see the number of loan facilities rolling off fixed rates this year “in the high 800,000s,” news.com.au reported.
“There are people who have more than one loan facility,” Kohler said. “You might have loans with different banks or a split with variable rate loans.”
The RBA board will next meet on Feb. 7 to discuss its monetary policy decision, with its public statement to be released on Feb. 10.
The central bank is expected to lift rates from 3.1% to 3.35%.
Prime Minister Anthony Albanese said he was conscious of the impact a rate hike would have on households.
“We know people are under real pressure when it comes to cost-of-living,” Albanese told reporters in Perth. “(Inflation) is something the whole world is grappling with and it is something that the government is very conscious of and we will be conscious of in the lead up to the budget as well.”
While unable to share the country’s immediate outlook, Kohler offered assurances that it’s not all bad news for Australians.
“What we can say is that we think the peak in inflation was at the end of 2022 – at around 8% – and that inflation will begin to ease over the course of this year,” she said.
High interest rates are needed to “to help” the return of stability when inflation is “too high,” Kohler said.
“We are aware this is making it difficult for a number of households, but the judgment is (that having) the higher inflation for longer is inflicting even more pain,” she said.
“We understand that some people are finding the rise in interest rates difficult to manage and others will have to cut back on discretionary spending. However, higher interest rates are necessary to ensure that the current period of higher inflation and cost-of-living pressures does not persist too long.
“As the governor has emphasised, the Reserve Bank Board is focused on returning inflation to target and establishing a more sustainable balance of demand and supply in the Australian economy.”
The RBA economist couldn’t confirm the forecast due in 10 days. She stood by the RBA’s November statement, however, that Australia would not be heading for a recession, news.com.au reported.
“The governor has said the aim of the board is to have a narrow path and the aim is to bring inflation down, but we do take account of the economy,” she said. “The November (statement) entailed that it did not detail a recession. Bringing inflation down for everyone is really the board’s focus and that will help everyone as well.”
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