Don’t repeat interest rate mistakes, broker warns

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An improving property market shouldn’t encourage the RBA to lift the official cash rate in the near future, according to 1300 HomeLoan managing director John Kolenda, who warned that doing so would be a repeat of GFC era mistakes.

"With the mining sector slowing, unemployment rising and the retail sector waiting to see improvement, we know that the RBA has to tread carefully," he said.

The fact that the election is out of the way is a good development for business confidence, Kolenda said, but he added that sustained improvements in the employment market need to happen before the RBA even considers upping the official cash rate.

Kolenda points to the central bank’s response to the GFC, where, after taking the official rate down to 3%, it lifted rates too high and too fast during 2009/10. He is concerned the bank might consider similar tactics this time around.

"That caused a lot of damage to businesses and consumers with the RBA since then making eight rate cuts to try and make amends and stimulate activity. Borrowers remain particularly vulnerable to the impact of a rate increase while they continue to deal with significant rises in the cost of living and all the other concerns surrounding the economy."

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