Philip Lowe (, the head of the Australian Reserve Bank, warned on Tuesday that "borrowers have never experienced a rise in official interest rates eight years after the last rate increase." "if we continue on the current improvement trajectory as expected, then the next move in official interest rates is likely to be a higher interest rate, not a cut."
Borrowers need to be prepared to raise interest rates
Lowe said he understood that borrowers might be uneasy about potential interest rate increases, but said they should be financially prepared just in case.
The Australian Reserve Bank is expected to raise interest rates in the second half of 2019 based on inflation and job market conditions, according to the Australian Financial Review, (AFR). Although the RBA never raised interest rates when house prices fell, that`s not to say they can`t.
How should the borrower deal with it
While some banks other than the big four have raised mortgage rates, the floating rate on outstanding home loans has fallen by an average of about 10 basis points since August 2017, according to the central bank.
In addition, Lowe commented that this may not be consistent with general thinking, but the truth is that "people are getting discounts."
The average borrower`s interest rate was actually 0.2 percent lower than last year, according to mortgage data. At the same time, Lowe encouraged borrowers to use mortgage-backed hedge accounts to ensure that their finances fended off rising interest rates.
`If you`re a good borrower and you don`t have to worry about tighter lending standards, you could get cheaper interest rates and more concessions, `Mr. Lowe said. If you are not satisfied with the interest rate you receive, go to your bank manager and ask for a lower interest rate.
Housing market expectation
"House prices in Sydney and Melbourne are falling" modestly, "Lowe said. The downturn in the real estate market is what we have to face. But the decline follows years of strong growth in house prices and a sharp increase in credit. I expect house prices to rise over time as income increases.
To ease excessive credit expansion and borrowing, "I think we do need a moderate price buffer," Lowe added. If house prices continue to fall and Australian and global growth is strong, then things are not bad.
Interest rate increase expectation
The Reserve Bank is expected to raise interest rates in the second half of 2019, and the Reserve Bank is waiting for inflation to approach its expected target. Unemployment is expected to exceed 3% this year and in the future. At the same time, wage pressure is rising faster than expected.
On Monday, the Federal Bank postponed the rate cut, which began in February 2019, to November 2019. Bond traders expect a rate hike of about 70% this time next year.
The difference is that Bill Evans, chief economist at the Western Pacific Bank, opposes optimism about raising interest rates and argues that "the Reserve Bank of Australia will keep interest rates unchanged until 2021."
