The Reserve Bank of Australia is likely to raise its benchmark interest rate numerous times within a year.
Kathmandu: After previously swearing to be “patient” on tightening policy, the Reserve Bank of Australia opened the door to lifting its benchmark interest rate, which is now at 0.1 percent, for the first time since 2010. For mortgage holders and other borrowers, a higher benchmark rate — the rate of interest imposed on loans between banks – usually means higher borrowing expenses.
According to RateCity, a financial comparison website, a homeowner with a $500,000, 25-year mortgage paying the lowest variable interest rate could end up spending $500 more per month by 2023 due to increasing interest rates.
According to OECD data, Australia is among the top five countries with the greatest levels of household debt, with the average household owing 203 percent of net disposable income.
In recent years, ultra-low interest rates and very flexible lending processes have pushed Australians to buy rather than rent, according to Nicolas Herault, an associate professor of economics at the University of Melbourne.
Australia’s interest rate had reached as high as 4.75 percent in 2010 until the benchmark interest rate went close to zero in 2020.
Ahead of a federal election on May 9, Australia’s political parties have announced a slew of promises to combat growing costs, including years of skyrocketing housing prices. The ruling Liberal-National administration proposed fuel tax cuts in its most recent budget to relieve mounting financial pressure on consumers, as well as the expansion of a program that allows first-time buyers to borrow up to 95% of the cost of a home without having to acquire mortgage insurance.
All of Australia’s major banks expect additional rate hikes this year, bringing the key rate to 1% or higher, while financial markets expect a benchmark rate of 1.75 percent by the end of the year and 3% by late 2023.