A bank boss with a salary of $4million has suggested interest rates are too low as average borrowers face a $1,000-a-month increase in their mortgage payments.
Ross McEwan, chief executive of NAB, said a decade of lower interest rates had to come to an end as inflation rose, with borrowers already facing the biggest rate hike since 1994 this year.
“We are going through rising interest after 11 years of declines, and we have high inflation hitting the basket every time we go to the supermarket or the gas station,” he told Australian Strategic Business. Forum.
“There is an impact, but somehow we have to deal with that and get interest rates back to a more normalized level.”
Mr McEwan, who last year received a paycheck of $4,013,241, lamented that there was too much negativity about the economy.
“I think we’re talking about the economy and we’re seeing parts of the economy are doing really, really well,” he said.
Ross McEwan, NAB’s chief executive with a pay of $4,013,241, said interest rates needed to return to a more normalized level (he is pictured center with NAB client advisers Emily Seeary and Sonam Dhaliwal )
While unemployment in June fell to 4.8%, its lowest level in 48 years, inflation in the year to March jumped to 5.1% – the fastest pace since 2001 and a level well above the Reserve Bank’s 2-3% target.
ANZ expects inflation forecast for the June quarter, due July 27, to show an annual rise in the consumer price index of 6.3%, which would be the fastest growth since 1990.
Commonwealth Bank’s Australian economics chief Gareth Aird expected Wednesday’s data to show headline inflation rising slightly lower – 6.2% – but said a “material surprise on the upside” of the data “would raise the risk of a 75 basis point increase” at the Reserve Bank’s board meeting in August.
A 0.75% rate hike would be the biggest monthly increase since December 1994.
It would also take the cash rate to a seven-year high of 2.1%, from a three-year high of 1.35%, after the biggest rate increases in nearly three decades.
Mr McEwan lamented there was too much negativity about the economy (pictured is a house in Melbourne)
Reserve Bank Governor Philip Lowe suggested last week that 2.5% was a neutral cash rate, meaning he needed to break above that level to signal a tightening of monetary policy.
What the big banks are predicting NOW
WESTPAC: Cash rate of 3.35% by 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.
ANZ: Cash rate of 3.35% by November 2022
This would include increases of 50 basis points in August, September, October and November
COMMONWEALTH BANK: Cash rate of 2.6% by November
This would include rate hikes of 50 basis points in August and September and a 25 basis point hike in November.
NAB: Cash rate of 2.85% by 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 further interest rate hikes, McEwan said most borrowers could cope.
“I know averages are very, very dangerous, but that’s 30% of our customers who are well and truly advanced in their payments, which is a good position to enter a rising interest rate environment.” , did he declare.
“The other thing we have is that we don’t assess the customer on the level of interest rate they paid over the last two years.
“There’s a stamp on top of that.
“We believe there are still good levels that customers can and will pay, even if inflation hits them in other areas.”
In May, the Reserve Bank of Australia raised the cash rate for the first time since November 2010, ending the era of a record cash rate of 0.1%.
A half-percentage-point rate increase in June marked the largest monthly increase since February 2000.
Another 50 basis point hike in July took the spot rate to a three-year high of 1.35%.
Back-to-back rate hikes in May, June and July have already marked the fastest rate of increase since 1994.
All major banks expect the RBA to hike rates in August and September by 0.5 percentage points.
But ANZ expects the cash rate to hit a 10-year high of 3.35% by November, as the RBA raised rates by 50 basis points in August, September, October and on the day of the MelbourneCup.
But ANZ expects the cash rate to hit a 10-year high of 3.35% by November as the RBA raised rates by 50 basis points in August, September, October and on the day of the MelbourneCup.
If that prediction materialized, a borrower with an average mortgage of $600,000 would have monthly repayments by November that would be $1,060 higher than they were in May before the RBA hiked rates.
A borrower paying a Commonwealth Bank variable rate would face monthly repayments of $3,366, up from $2,306 six months earlier.
Mr. McEwan had advice for borrowers struggling with higher interest rates.
“The one thing I keep saying is when customers are having difficulty, please just pick up the phone,” he said.
“Because if we can talk to them early on, the solutions are usually there.
“What tends to happen, embarrassment sets in, and people don’t pick up the phone and only when they get the last letter do they answer.”
What borrowers could pay in November of each month compared to May
$500,000: Up to $883 from $1,922 to $2,805
$600,000: Up to $1,060 from $2,306 to $3,366
$700,000: Up to $1,236 from $2,691 to $3,927
$800,000: Up to $1,413 from $3,075 to $4,488
$900,000: Up to $1,590 from $3,459 to $5,049
$1,000,000: Up to $1,767 from $3,843 to $5,610
Calculations based on the cash rate dropping from a record high of 0.1% in May to 3.35% in November, as forecast by ANZ. Monthly repayments based on popular Commonwealth Bank floating rate increase from 2.29% to 5.39% expected