Westpac claims interest rate hikes aren’t a big deal

Interest rates are about to rise again, and will continue to rise through the year, but one Australian bank thinks there is nothing much to worry about.

Westpac chief executive Chris de Bruin said though higher rates would cause difficulties for some people ‘at the margin’, the vast majority of consumers and businesses could handle the increases. 

Mr de Bruin said Australia has been through a long period of ultra-low interest rates, including a record 0.1 per cent that lasted 18 months, ‘so this is a natural reversion’.

‘The money was never going to be free forever,’ he said.

The cash rate rose for the first time since November 2010 last month from 0.1 per cent to 0.35 per cent.  

Interest rates are expected to rise again on Tuesday afternoon. Pictured is a young couple applying for a mortgage

The Reserve Bank is expected to raise the cash rate by 0.25 or 0.4 percentage points on Tuesday afternoon, followed by a series of rises that would take rates above 2 per cent by Christmas.

Westpac economists are slightly less pessimistic than other banks, predicting the rate will get to 1.75 per cent by the end of the year.

‘Even at 1.5 per cent we are still talking about very, very low interest rates,’ Mr de Bruin told the Sydney Moring Herald. 

He said households were prepared for higher rates, having built up their savings during the pandemic. 

‘It isn’t that we’re projecting a massive shock in interest rates. It’s likely to be steady and it’s likely to be at a point that’s affordable for the vast majority of Australians,’ he said.

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Westpac economists predict the cash rate will get to 1.75 per cent by the end of the year. Pictured is a Westpac branch in Collins Street, Melbourne

Australian Prudential Regulation Authority chairman Wayne Byres warned people who took out ultra-cheap fixed-rate loans could face ‘repayment shock’ and said falling house values could make things worse for some borrowers.

‘The faster than expected emergence of higher inflation and interest rates will have a significant impact on many mortgage borrowers, with pockets of stress likely, particularly if interest rates rise quickly and, as expected, housing prices fall,’ he told a banking summit last week. 

Finder head of consumer research Graham Cooke said Australia’s economy is ‘at a precipice and some families are really starting to struggle financially with the cost of living – and for those with a home loan, it could get a lot worse’.

‘Lifting the cash rate is good news for savers, and will help to slow Australia’s runaway property market, but those with a home loan are in line for several further cost increases,’ he told News Corp.  

Treasurer Jim Chalmers said ‘inflation will get worse before it gets better’ and warned of significant financial stress over the next few months. 

Westpac CEO Chris de Bruin (pictured) said though higher rates will cause difficulties for some people ‘at the margin’, the vast majority of consumers and businesses could handle the increases

He blamed the previous Coalition government for today’s looming interest rate rise, saying there was ‘no use mincing words about it’.

‘It’s certainly a difficult period for a lot of people. We inherited this full blown cost of living crisis that includes rising interest rates,’ he told the ABC. 

A new Wespac survey found small businesses were positive about the economy’s outlook, despite the rising cost of living, including mortgage, rent, food, and power prices.

The survey suggested the rising cost of living was the biggest concern for small firms, followed by worries about inflation, interest rates, and Covid disruptions.