Westpac chief executive Peter King has highlighted how rising interest rates are hitting some Australians much harder than others, as the bank’s top economist suggested the next federal budget should include handouts for vulnerable households that were struggling financially.
As financial markets bet the Reserve Bank will raise interest rates again on Tuesday, King described rate rises as a “very blunt tool,” which were adding to the pain caused by the rising cost of living.
Westpac CEO Peter King said rate rises will be felt unevenly, with some Australians hit harder than others.Credit:Eamon Gallagher
“Prices are through the roof, interest rates are going up, and depending on where you sit there will be opportunities to grow and prosper, or you may need to adjust to survive. So the impacts will be felt in a very uneven way,” King said in a speech to bank customers in Sydney.
King reiterated that Australia’s economy was starting from a position of strength, with low unemployment, and he said the bank itself had a strong balance sheet. But he said the nation was entering a weaker patch, and Westpac was gearing up to provide help to struggling customers.
“The cost of living and inflation are serious challenges, and they’re hitting some Australians really hard. In response, the RBA is lifting interest rates, and we know that’s a very blunt tool that will be felt unevenly,” he said.
In response to surging inflation, Australia’s official interest rates have jumped from 0.1 per cent to 3.35 per cent since May last year, and the RBA is widely expected to increase rates to 3.6 per cent on Tuesday. Money markets are betting rates will eventually peak at more than 4 per cent.
King made the remarks in a speech that signalled the bank was keen to embark on a “new era” after a period of simplifying its business, announcing its new purpose would be “creating better futures together”.
‘I think that there’s a real argument in the budget for some targeted support for people who are absolutely in hard times.’
Speaking at the same event, the bank’s chief economist Bill Evans cited RBA modelling suggesting one in 10 variable mortgage holders will soon have no spare cash left after meeting their repayments and covering their cost of living. He backed using the budget to provide relief to people who were “really doing it tough.”
Evans, a veteran market economist, said he thought the RBA’s rate rises would be enough to tame inflation, and there was a role for fiscal policy – government spending and taxing – to support struggling households. He did not think such relief would work against the RBA’s goal of slowing the economy to bring down inflation.
“I reckon that monetary policy is doing fine on its own to smash demand. And I think that there’s a real argument in the budget for some targeted support for people who are absolutely in hard times,” Evans said.
“I’m certainly not going to be crying from the rooftops that you should not be providing targeted support for this economy because it’s going to be a very tough time,” Evans said.
Evans said it was possible the RBA’s modelling understated the degree of mortgage stress, as he also highlighted the uneven distribution of household savings buffers.
“Overall, the household sector’s got $300 billion of excess savings – extraordinary. But we do believe that a very high proportion of that is held among the more wealthy,” he said.
The agenda for the bank outlined by King comes as Westpac has undergone sweeping changes since a late 2019 anti-money laundering compliance scandal, including cost-cutting and efforts to overhaul technology and regain market share. King indicated that key focus areas would include supporting customers; building a “digital first” bank; sharing expertise in areas such as countering scams; and advocating for “positive change.”
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