Reserve Bank could raise interest eight times in t...

Reserve Bank could raise interest eight times in two years

reserve bank

A former board member of the Reserve Bank of Australia has warned that interest rates could be raised up to eight times in the next two years, pushing mortgage costs through the roof and threatening the regained stability of Australia’s economy.

John Edwards made the claim in a paper written for the Lowy Institute, an international policy think tank based in Sydney, and argued that the rises were inevitable given that they remained unusually low, with economic growth “more consistent across the global economy than we have seen in most of the years since the 2008 financial crisis”.

“My guess is that [the RBA] is already thinking about a program of rate increases that will continue for several years,” Mr Edwards wrote.

“Thus the growing trend to higher interest rates, which in most advanced economies are still unprecedentedly low. As the impact of the 2008 crisis fades, so does the rationale for super low central bank policy rates.”

The major Australian banks have already begun raising interest on interest-only loans as a result of the Australian Prudential Residential Authority tightening its rules for financial institutions to prepare for potential future economic problems.

Australian interest rates are influenced to as strongly by global economic conditions as Reserve Bank control, and Mr Edwards says the potential hikes could be part of similar preparations to that of the APRA.

“It seems to me that something like eight quarter percentage point tightenings over 2018 and 2019 are distinctly possible, if the RBA’s economic forecasts prove correct,” Mr Edwards wrote.

“It’s possible the tightening could start earlier, or if not the tightening itself, at least the signalling which should precede it. We may be seeing a little of that now.”