Global bank grim interest rate warning

The world’s central bank issues more bad news for mortgage holders – predicting the worst is yet to come.

In news set to further break the hearts of mortgage holders across the country, the world’s central bank is urging more interest rate hikes, arguing the world economy is at a crucial point as countries struggle to rein in inflation.

Despite the relentless rise in rates over the past 18 months, inflation in many top economies remains stubbornly high, while the jump in borrowing costs is triggering the most serious banking collapses since the financial crisis 15 years ago.

The Bank for International Settlements (IBS), the umbrella body over central banks, says governments across the world need to “stay on course”.

“The global economy is at a critical juncture. Stern challenges must be addressed,” Agustin Carstens, BIS general manager, said in a speech launching the organisation’s annual report released over the weekend.

“The time to obsessively pursue short term growth is past. Monetary policy must now restore price stability. Fiscal policy must consolidate.”

He noted central banks may think they have “done enough” only to find that they need to tighten further.

“High inflation could persist,” he said. “In addition to the inflationary pressures already in the system, new ones could emerge.”

The Reserve Bank has lifted interest rates at 12 of its past 13 meetings, taking the cash rate from 0.1 per cent in May last year to 4.1 per cent this month in a bid to settle inflation, which is currently at 7 per cent.

Financial markets put the chance of another increase at its July meeting at one in three.

That’s a significant jump from the historic pandemic low of 0.1 per cent that Australians enjoyed for more than two years during the Covid-19 pandemic.

The dire economic warning comes as three separate investment banks issued their own sobering predictions — TD Securities, Goldman Sachs and Capital Economics.

Mortgage holders have been feeling the financial squeeze amid a campaign of interest rate rises from the RBA. Picture: NewsWire/ Monique Harmer

TD Securities previously held a more optimistic outlook, but added another 25 basis points to its forecast for Australia’s “terminal rate” off the back of some new economic data.

TD Securities senior strategist Prashant Newnaha said, per The Australian, “The red hot Australian labour market poses the threat that inflation expectations become unanchored given weak productivity and upside risks to the RBA’s wages forecasts.”

Despite a looming recession, Australia’s labour market data has remained stubbornly strong.

Data from the Australian Bureau of Statistics, released earlier this month, found that even with many companies collapsing or laying off staff, the number of unemployed people in Australia actually shrank.

The jobless rate in May was 3.6 per cent, down from 3.7 per cent in April.

-with Alex Turner-Cohen

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Originally published as Global bank grim interest rate warning