Bernie Fraser says RBA needs to start raising rates now

Prime Minister Scott Morrison, who has said interest rates will be lower under his government than under Labour, warned reporters on Monday not to politicize the potential rate hike.

“It’s not about politics. What happens tomorrow is about what people are paying on their mortgages. That’s what worries me. It’s not about what it means for politics,” he said.

A Reserve Bank interest rate hike will be a key talking point for Scott Morrison and Anthony Albanese for the rest of the election campaign.Credit:James Brickwood, Alex Ellinghausen

But Fraser said it was clear the economy, with unemployment at 4% and inflation at 5.1%, could sustain a cash rate above an “unsustainable low” of 0.1%.

He said both sides of politics faced a stark shock after the May 21 poll as their election platforms focused on pumping more money into the economy.

“There’s a lot of stimulation around; there is fiscal stimulus there and then every day there is a promise in the campaign trail to spend more,” Fraser said.

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“I don’t think either side, no matter who comes back to power, really knows what’s coming. They focus more on winning than on what’s good for the economy and what’s good for the

community.”

Morrison, campaigning in Victoria, said there was pressure from outside Australia on the country’s interest rate settings.

He said the current rate of 0.1% was “unusually low” and taxpayers understood it would start to rise.

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“The pressures on interest rates … the pressures on the cost of living show why the economy is so important in this election,” Morrison said.

But shadow treasurer Jim Chalmers said if rates were raised on Tuesday it would be an indictment of the government’s economic management.

“This is the third wave of Scott Morrison’s cost-of-living crisis,” Chalmers said. “It’s a triple whammy of falling real wages, skyrocketing inflation and interest rates that are about to rise as well.

“Australians can’t risk, and they can’t afford, another three years of being absolutely punished by Scott Morrison’s economic failures.”

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ANZ economist Adelaide Timbrell said that even if interest rates rose on Tuesday, many homebuyers would barely notice the change.

She said 40% of people had kept their mortgage repayments where they were before the RBA started cutting rates. The proportion of people with high debt and low repayment margins was lower today than before the COVID-19 recession.

While many expect the RBA to raise rates, KPMG senior economist Sarah Hunter said there were still good reasons for the bank to wait until June and then raise rates. by 0.4 percentage point.

“An increase in June would allow the RBA to act outside of the election campaign, and with the benefit of seeing the Wage Price Index released in mid-May before deciding the extent of the move at the upside,” Hunter said.

The spot rate, set by the RBA, is actually the price of silver in Australia. It sets the level for all other interest rates, including mortgage rates, which also include commercial bank profits and the risk of a homebuyer defaulting on their loan.

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