A $4 million bank executive has suggested interest rates are too low as average borrowers face a $1,000 a month hike in their mortgage payments.
Ross McEwan, NAB chief executive, said a decade of falling interest rates should have ended as inflation rose, with borrowers already grappling with the biggest rate hike since 1994 this year.
“We are seeing interest rates rising after falling for 11 years and we have high inflation that hits us in the basket every time we go to the supermarket or gas station,” he told the Australian Strategic Business Forum .
“There is an impact, but in a way we have to deal with it and get interest rates back to normalized levels.”
Mr. McEwan, who was paid $4,013,241 in compensation last year, complained that there was too much negativity about the economy.
“I think we’re badmouthing the economy and we’re seeing some parts of the economy doing really, really well,” he said.
Ross McEwan, chief executive of NAB with a fee of $4,013,241, said interest rates need to be brought “back to more normalized levels” (he is pictured center with NAB client advisors Emily Seeary and Sonam Dhaliwal) .
While unemployment fell to a 48-year low of 4.8 percent in June, inflation rose 5.1 percent in the year to March — the strongest pace since 2001 and a level well above the reserve’s target Bank of 2 to 3 percent lies.
ANZ expects inflation due for the June quarter to show a 6.3 percent annual CPI rise on July 27, which would be the fastest growth since 1990.
Gareth Aird, head of Australia’s economics division at the Commonwealth Bank, expects Wednesday’s data to show headline inflation rising by a little less – 6.2 percent – but said a “key upside surprise” from the data was “the Risk of 75 basis point rise” would increase the Reserve Bank board meeting in August.
A 0.75 percent increase would be the strongest monthly increase since December 1994.
It would also take the policy rate from an existing three-year high of 1.35 percent to a seven-year high of 2.1 percent after the steepest rate hikes in nearly three decades.
Mr McEwan lamented that there was too much negativity about the economy (pictured is a Melbourne home).
Reserve Bank Governor Philip Lowe suggested last week that 2.5 percent was a neutral policy rate, meaning it had to rise above that level to signal tightening.
What the big banks are predicting NOW
WEST PAC: 3.35 percent cash rate through February 2023
This would include increases of 50 basis points in August and September and increases of 25 basis points in October, November, December and February
NO: 3.35 percent cash rate through November 2022
This would include increases of 50 basis points in August, September, October and November
COMMON WEALTH BANK: 2.6 percent cash rate through November
These include rate hikes of 50 basis points in August and September and a 25 basis point hike in November
SNAP: 2.85 percent cash rate through November
This would include increases of 50 basis points in August and September and increases of 25 basis points in October and November
Despite the likelihood of more rate hikes, most borrowers could handle it, McEwan said.
“I know averages are very, very dangerous, but 30 percent of our customers are really upfront with their payments, which puts us in a good position to step into a rising interest rate environment,” he said.
“The other point we have is that we are not valuing the customer on the level of the interest rate they have paid over the last few years.
“There is still a buffer above that.
“We believe that customers will still have a good level and be able to pay even if inflation hits them in other areas.”
The Reserve Bank of Australia raised interest rates in May for the first time since November 2010, ending an era of record-low interest rates of 0.1 per cent.
A half a percentage point rate hike in June marked the largest monthly rise since February 2000.
Another 50 basis point hike in July took the policy rate to a three-year high of 1.35 percent.
The consecutive rate hikes in May, June and July have already marked the steepest pace of increases since 1994.
All major banks expect the RBA to hike rates by 0.5 percentage point in August and September.
But ANZ expects the policy rate to hit a 10-year high of 3.35 percent by November as the RBA hiked rates by 50 basis points in August, September, October and Melbourne Cup Day.
But ANZ expects the policy rate to hit a 10-year high of 3.35 percent by November as the RBA hiked rates by 50 basis points in August, September, October and Melbourne Cup Day
If this prediction comes true, a borrower with an average mortgage of $600,000 would have monthly payments through November that would be $1,060 higher than they were in May, before the RBA hiked rates.
A borrower paying off a Commonwealth Bank floating rate would face $3,366 in monthly repayments, compared to $2,306 six months earlier.
Mr McEwan had advice for borrowers struggling with higher interest rates.
“The one thing I keep saying is if customers get in trouble, just pick up the phone,” he said.
“Because if we can talk to them very early on, the solutions are usually already there.
“What’s happening is embarrassing, people don’t answer the phone and don’t answer until they have the last letter.”
What borrowers could pay each month through November compared to May
$500,000: Increase of $883 from $1,922 to $2,805
$600,000: Increase of $1,060 from $2,306 to $3,366
$700,000: Increase of $1,236 from $2,691 to $3,927
$800,000: Increase of $1,413 from $3,075 to $4,488
$900,000: Increase by $1,590 from $3,459 to $5,049
$1,000,000: Increase of $1,767 from $3,843 to $5,610
Calculations are based on an increase in the cash rate to 3.35 percent in November from a record low of 0.1 percent in May, as predicted by ANZ. Monthly repayments are based on a popular Commonwealth Bank floating rate, increasing from 2.29 percent to a projected 5.39 percent