‘Really, really tough’: Tears on air as 60 Minutes speaks to struggling homeowner, RBA asked question everyone is asking
There were tears on 60 Minutes last night as an Aussie homeowner revealed how hard it had become to service her mortgage while the RBA was pressed on the question millions of Australians are now asking.
The program was granted a rare in-depth interview that showed the inner workings of Australia’s central bank, with its Assistant Governor opening up about the difficult call to increase interest rates in the midst of a crippling cost of living crisis.
To illustrate how hard things now are for the 3.3 million Aussies who are struggling to keep up with their mortgage payments, the show also spoke to Sydney homeowner Vanessa Merryweather.
She borrowed conservatively to build her home on the outskirts of Sydney – and managed to pay her loan so far ahead, she had $60,000 sitting in redraw.
But then life dealt a series of blows. During the pandemic, her business dried up. And some bad health news left her unable to work full-time.
She and her daughter pulled through their health treatments, and she’s now back at work, but is facing an uphill battle against her rising mortgage costs.
“So they’re talking about two more [interest rate rises], I think November, December. So my house will be on the market in January if that’s the case,” Ms Merryweather said.
RBA chief grilled
60 Minutes then pressed the RBA’s Assistant Governor Dr Sarah Hunter on why the central bank’s strategy to tame inflation relied on everyday Aussies cutting back while the latest figures show they already have and while governments continue to spend.
“What is the benefit from continuing to slug everyday households and Australians when seemingly state and federal governments can splurge, however they see fit?” reporter Adam Hegarty asked.
“Yeah, look, government spending is definitely part of the picture. But what I would also say is that we’re an independent central bank,” Dr Hunter said.
“We’re unelected. It’s really not our place to tell the country, politicians, individuals, anyone, what governments should or shouldn’t spend money on, how much they should or shouldn’t be spending. That’s a conversation the country should have. And we all get to have our say at the ballot box effectively when elections roll around.”
Hegarty said statistics show household spending has flattened, while government spending, excluding Covid, is at the highest level in 40 years.
“Like, that’s not fair, is it?” he said. “Is government spending making your job easier or harder?”
“Look, government spending is a part of demand,” Dr Hunter said. “It’s contributing to demand. And so what the board is trying to do with those interest rate rises is to just bring demand back down, if you like, so that it rebalances with supply. And once we do that, then inflation will be trending and we’ll get back to that low and stable level that we’re targeting, that’s our mandate, so that everyone can just forget about it. I’d actually love it if the country could forget about inflation. That’s what we’re here to do.”
“Look, it’s really, really tough,” Dr Hunter told 60 Minutes when asked about the people losing and selling their homes because they can’t keep up with mortgage repayments. “It does weigh on us here. It does weigh on the board but we gotta get inflation out for the good of everybody, and that’s really what we’re trying to do.”
Dr Hunter said rates were the most effective way to bring down inflation, but that the calls to raise them were not easy for the board. She said rate hikes were the only effective tool the RBA could use.
“Over a long history, we’ve actually tried a few different options,” she said. “Here in Australia, we tried a wage freeze in the early 1980s. We’ve also tried targeting credit growth, money supply growth. And what we learned through that sort of journey, none of those were particularly effective. What we found did work and we found it here and in many other countries is interest rates. The challenge is it’s not painless, unfortunately, and we know some people are feeling the pain, at the moment, and there’s no painless tool, but this tool does work, and that’s why we use it.”
She admitted it was “tricky” to get the balance right. “There are many people who don’t have a mortgage, who may never own their own home, actually, who are long-time renters,” she said. “For them, they’re quite often on lower incomes. For them, high inflation is really, really difficult to deal with. And they see it, and we’re all seeing it and feeling it in absolutely everything that we’re buying.”
The chief economist said while millions of Aussies were hurting, the rate rises were doing their job. “We have actually brought inflation down over the last few years. We’re not there yet, and it’s lifted up a bit recently,” she said. “Partly that’s the oil shock, partly there are some domestic factors in that as well. But it is hard because there is a cost. And it is difficult and weighs on our minds as much as anyone else.”
What’s next on rates?
Markets and analysts seem to be bracing for another cash rate hike in November following hawkish remarks from Reserve Bank of Australia deputy governor Andrew Hauser, who warned at a Citi conference in Sydney on Wednesday that the RBA faced “hard choices” ahead.
They are now pricing in a 64 per cent chance the central bank will raise the cash rate by a quarter of a percentage point on Melbourne Cup Day to 4.85 per cent, which would mark the highest level since the 2008 global financial crisis. That is up from roughly 50 per cent on Wednesday and 27 per cent before Mr Hauser took the stage.
All eyes are now on the Australian Bureau of Statistics’ third-quarter inflation report due on Wednesday, the final key piece of data before the central bank convenes in early November.
The figures are expected to show inflation accelerated in September and stayed well above the RBA’s 2 to 3 per cent target range.
Bloomberg consensus indicates headline annual inflation is expected to pick up to 4.2 per cent in September from 4 per cent in August, driven by higher energy costs. Meanwhile, trimmed mean inflation — the RBA’s preferred gauge because it strips out volatile items such as fuel — is forecast to hold steady at 3.6 per cent.
All this is likely to take a toll on businesses, and the stock market could be in for a rocky couple of months too.
“Going into the last two months of this year, the downside risk for markets has moved from an earnings-led market correction to a broader repricing of interest rates, inflation and risk premium,” said Diana Mousina, deputy chief economist at AMP. “Higher interest rates are adding another layer of pressure.”
