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Prominent economist Shane Oliver has told people not to panic over rising interest rates and forecast that the next peak in the cash rate would be about four per cent.
Mr Oliver, who is chief economist of AMP Capital, said it was “a bit overblown” to suggest that people with a mortgage would struggle to cope with a rise in interest rates.
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“We heard similar warnings at the bottom of the last rate cycle in 2009 but didn’t see major problems through the 2009/2010 tightening cycle,” he said.
The Reserve Bank of Australia left the cash rate at a record-low 2.5 per cent at its most recent monthly meeting and announced the cash rate would likely stay at that level for another year.
Mr Oliver said interest rates would probably peak at about four per cent when they did start rising again, but that Australians would be able to cope.
He said Australians would be flexible enough to slow down their principle repayments, just as they are now repaying their mortgages ahead of schedule.
He also said they would be protected by rising household income, which would be a precondition for any increase in the cash rate.
Mr Oliver said although the rise in household debt ratios in the past 20 years had left people more exposed to higher interest rates, this was not new and explained why the peak in the cycle for interest rates has been trending down.
“The Reserve Bank is well aware of the issue and knows that it doesn’t need to raise rates as much as in times past to have the same impact,” he said.
“So just as the 2010 cash rate peak of 4.75 per cent was below the 2008 peak of 7.25 per cent, the next peak will likely be lower again – maybe around four per cent.”
