How rising living costs are already tightening budgets before RBA decision

Families are already feeling the squeeze as a “hidden” rate hit from petrol and living costs bites ahead of the next RBA decision.

Families have already been hit with the equivalent of a “hidden” interest rate rise as petrol prices and living costs crush household budgets ahead of the next Reserve Bank decision.

Compare the Market economic director David Koch said higher fuel costs were effectively doing the Reserve Bank’s work for it, tightening finances before any official move.

“Because that interest rate increase, or the equivalent, has already come through in higher petrol prices, I reckon they might hold the line,” Mr Koch said.
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He warned against adding further pressure to households already cutting back spending.

“Consumer confidence has plunged and business confidence has fallen to almost record lows,” Mr Koch said.

“The Reserve Bank doesn’t want to crush consumers and businesses with another interest rate increase.”

A single 0.25 percentage point rate rise would add about $157 a month to repayments on a $1m loan, according to Compare the Market, rising to more than $600 if rates climb by a full percentage point.

Mr Koch said the central bank would also weigh global oil prices and the upcoming federal budget, with any easing in geopolitical tensions likely to reduce inflation pressure.

RBA Governor Michelle Bullock faces mounting pressure as households warn another rate rise could push budgets to breaking point. Picture: NewsWire / Gaye Gerard

Frame Finance director Imogen Alexy said households were already feeling the squeeze, with some turning to short-term tactics to stay afloat.

“We are seeing a lot more debt consolidation just to alleviate pressure at the moment,” she said.

“This can hurt people in the long run by adding additional interest, but it’s a sign people are feeling the pinch and trying to get their expenses down as much as possible.”

Frame Finance director Imogen Alexy says borrowers are consolidating debt and cutting spending as cost-of-living pressures intensify.

Ms Alexy said while most borrowers were still keeping up with repayments, the real stress point had not yet fully hit.

“I haven’t seen too many people fall behind just yet,” she said.

“It takes quite a few months for the impacts to really be felt. People will struggle, cut back, and then eventually get to that point of desperation where they’re falling behind on repayments.”

She said rising living costs were already acting like a de facto rate rise, or a “hidden rate rise”, forcing households to rein in spending and build buffers.

Soaring petrol prices are acting like a “hidden” rate hike, quietly draining household budgets before any official RBA move. Picture: NewsWire / Luis Enrique Ascui

“People have been a lot more conscious about how much they’re driving, taking public transport where they can, and making sure their spending is more in check,” she said.

“Absolutely. The general increasing cost of living has seen people’s discretionary spending reduced.”

Banks are expected to pass on any rate rise in full, adding hundreds to monthly repayments for many mortgage holders. Picture: NewsWire / Gaye Gerard

Ms Alexy said any further rate rise would hit entry-level borrowers hardest as borrowing capacity continues to shrink.

“At the lower end people are starting to feel more of an impact on what they can afford to buy,” she said.

“Because it’s their first mortgage a lot of the time, they’re a bit nervous and want to wait.”

She urged borrowers to act early to protect themselves ahead of any further increases.

“I always recommend people accumulate as much additional funds as they can into their offset accounts if they have spare cash,” she said.

“A conversation with your broker or bank can save you thousands, literally.”

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david.bonaddio@news.com.au