Economist warns era of cheap credit has come to an end

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Australian mortgage holders are being warned that the era of ultra-low interest rates is unlikely to return, with economists saying higher borrowing costs could become the new normal.

Oxford Economics chief global economist Ryan Sweet says a series of global disruptions over the past five years including international conflicts and trade tensions have kept inflation elevated and forced central banks to maintain higher interest rates.

Australia’s cash rate, which fell to a record low of 0.10 per cent during the pandemic, has climbed back to 4.35 per cent following several rate increases this year aimed at controlling inflation.

While inflation has eased slightly, underlying price pressures remain stubbornly high, keeping the Reserve Bank under pressure to stay cautious. Economists expect rates to remain unchanged for the rest of 2026, with any future cuts likely to be gradual.

Higher fuel prices, global uncertainty and recent wage increases are also adding to inflation concerns. Some analysts believe further rate rises later this year cannot be ruled out.

Australia’s economy continues to grow, but at a slower pace. Economic growth weakened in the March quarter, while productivity also declined, highlighting ongoing challenges for businesses and households.

Experts say Australia’s heavy reliance on variable-rate mortgages means interest rate changes have a greater impact on consumers than in many other countries. As a result, higher borrowing costs are already weighing on household spending and confidence.

Despite concerns about slower growth, economists do not expect a repeat of the economic turmoil seen in the 1970s. However, they warn that improving productivity and strengthening economic resilience will be critical to maintaining long-term growth.

For homeowners, the message is clear: borrowing costs are likely to remain higher than many became accustomed to during the low-rate years of the pandemic era.

Source : News.com

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