Why one expert says interest rates should have gone up

There is relief for homeowners and buyers after the Reserve Bank’s decision to leave interest rates on hold.

But Tom Hawley, director of Azura Financial, told Today he believes the RBA should have actually increased rates instead.

“It’s an unpopular opinion, I think some temporary increase in interest rates is probably an easier pill to swallow, rather than having a permanent increase in prices,” he told Today.

“People forget that since COVID-19, prices are up 26 per cent, so three.. four… five per cent inflation doesn’t sound like much but when you add it up over time, it’s a really destructive force in the economy.”

Yesterday, RBA Governor Michele Bullock announced interest rates would remain at 4.35 per cent, after three consecutive increases prior.

But while there is some relief for buyers and mortgage holders, Hawley warned more rate rises are likely on the way.

“They were saying there were going to be two more quick hikes in succession, three of the four major banks are now saying maybe no more hikes… I think the financial markets are saying there is a 50 per cent chance of a hike later in the year, but I just think inflation is so destructive, I think they would have been better getting on top of it sooner,” he said.

And with the latest rate decision on top of the Albanese Government’s budget announcement and a tentative deal struck between the US and Iran, Hawley had a promising forecast for those wanting to buy into the property market.

“The property market really moves off momentum, if people are expecting prices to go lower, there is no real reason to buy now because if you can buy a property cheaper in three, six or nine months, it makes sense to hold off,” he said.

Read more

RBA delivers welcome relief – but also nine words no borrower wanted to see

“You aren’t going to go and pay an exorbitant mortgage when the catalyst for prices moving lower is increased interest rates and the conflict overseas and now the budget has led to a rapid loss of confidence, I would expect it will continue easing lower until they start to cut rates, which might happen next year.”

Hawley said he expects property prices to continue easing for the next 12 months, warning that buyers wait years for these types of markets to come to fruition.

“I think people will be better off buying when the conditions are in their favour and they have an advantage rather than waiting for that certainty to come back,” he said.