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Australian interest rates: how high and for how long?

By Graham Young - posted Tuesday, 21 February 2023

Home buyers and businesses are suffering sticker shock as the Reserve Bank of Australia (RBA) lifted the official cash rate from 0.1 percent to 3.35 percent in the course of the nine months since April 2022. But they should probably be thinking of rates of this level as the "new normal."

Assuming lenders pass the whole rate increase, payments on the average floating rate home loan of $599,992 (US$416,000) have increased by $19,499.74 per annum.

If the mortgage is being paid by a couple, each earning average income, then repayments go from 28 percent of before-tax income, to 39 percent. On an after-tax basis, this is 35 percent to 49 percent.


This is obviously unsustainable for a lot of homeowners.

Punters are not happy. The ANZ-Roy Morgan consumer confidence index bounced slightly in January and hit 86.8. It is slightly higher than at the end of last year but still amongst the lowest levels measured by the index.

It has only ever been lower once-at the beginning of the pandemic-and was slightly higher even at the depths of the global financial crisis.

House prices have also declined by around 8.4 percent, the largest decline on record.

Government ministers are showing signs of panic, with Assistant Treasurer Stephen Jones claiming: "if this is not the last, it's near the last of the rate rises."

But what does the governor of the Reserve Bank have in mind?


Australia is facing a similar situation to what they encountered in 1973, the second year of the Whitlam government, with the "Arab oil crisis" forcing-up energy costs against an expanding economy driven by massively increased government largesse.

The world, and Australia more than most, entered into a period of "stagflation" where economies languished, but prices rose rapidly. It was driven partly by supply-side constraints and in part by expectations where unions pressed for higher wages. And anticipating higher wages and inputs, businesses pre-emptively raised prices.

The economic dog chased its tail for almost a decade until 1982, with the biggest winners being highly-geared speculators.

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This article was first published in The Epoch Times.

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About the Author

Graham Young is chief editor and the publisher of On Line Opinion. He is executive director of the Australian Institute for Progress, an Australian think tank based in Brisbane, and the publisher of On Line Opinion.

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