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Reserve Bank governor Philip Lowe warns Australian borrowers to prepare for more interest rate rises

Reserve bank boss warns Australian homeowners to be prepared for MORE interest rate pain

  • Reserve Bank of Australia governor Philip Lowe warns of higher interest rates
  • He said it would take at least two years for inflation to return to the 2-3 percent target

Australia’s most powerful banker is urging borrowers to prepare for more rate hikes, with inflation expected to remain elevated for several more years.

Reserve Bank of Australia governor Philip Lowe said it would take at least two years for inflation to fall back within the two to three percent target.

This would mean that interest rates will rise several more times in 2022 before inflation peaked later this year at its highest level in 32 years, eroding borrowers’ savings.

“If interest rates start to rise, those buffers are going to be eaten up and the fact that households have more debt than they used to be, it’s going to bite,” said Dr. Lowe to the American Chamber of Commerce in Australia on Tuesday.

“We are very aware of that.”

Reserve Bank of Australia governor Philip Lowe said it would take at least two years for inflation to fall back within the two to three percent target.

Reserve Bank of Australia governor Philip Lowe said it would take at least two years for inflation to fall back within the two to three percent target.

New Commonwealth Bank Forecasts on RBA Cash Rate

JULY: 0.5 percentage point up to 1.35 percent

AUGUST: 0.25 percentage point up to 1.6 percent

SEPTEMBER: 0.25 percentage point up to 1.85 percent

NOVEMBER: 0.25 percentage point up to 2.1 percent

dr. Lowe predicted last week that inflation would hit seven percent by the end of 2022 for the first time since the end of 1990.

Headline inflation rose 5.1 percent in the year to March, the fastest pace since 2001.

The Reserve Bank raised its spot interest rate by 0.25 percentage point in May, the first increase since November 2010.

This ended the era of the record-low cash interest rate of 0.1 percent, bringing it to 0.35 percent.

Another rate hike followed in June, with the 0.5 percentage point increase being the strongest since February 2000.

The existing cash rate of 0.85 percent is now the highest since October 2019 before the pandemic.

The Commonwealth Bank, Australia’s largest mortgage lender, expects an interest rate hike of half a percentage point in July.

This would be followed by 0.25 percentage point increases in August, September and November, bringing the spot rate to 2.1 percent – the highest in May 2015.

How much YOU could pay on your mortgage this Christmas?

$500,000: $485 up from $1,987 to $2,472

$600,000: $582 up from $2,384 to $2,966

$700,000: $679 up from $2,781 to $3,460

$800,000: $777 up from $3,178 to $3,955

$900,000: $874 up from $3,575 to $4,449

$1,000,000: $970 up from $3,973 to $4,943

The monthly amortization calculations are based on a typical Commonwealth Bank floating rate rising from 2.54 percent to 4.29 percent, in line with the spot interest rate rising from 0.35 percent to 2.1 percent. Figures refer to banks before adjusting to new 0.85 percent spot rate later this month

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