The case is building for the Reserve Bank to try a pause with its interest rate torture of the overborrowed, with the CEO of Westpac Peter King telling us that the repossession of homes is getting to near GFC levels! This comes as yesterday’s retail sales numbers showed that rising interest rates and other higher cost of living imposts, such as power bills, are slowing down shoppers. This how Reuters reported it: “Australian retail sales levelled off in February after wild swings around the year-end holidays, suggesting consumers are reining in spending in the face of higher living costs and rising interest rates. Data from the Australian Bureau of Statistics (ABS) on Tuesday showed retail sales rose just 0.2% in February, compared to a revised 1.8% rise in January. Sales of A$35.14 billion ($23.48 billion) were 6.4% higher than a year earlier”.

The 0.2% rise was higher than economists expected but those stat-guessers are really doing that in very unusual times, with those 10 rates rises since May being the fastest tightening of monetary policy ever.

Peter King sees the repossessions as a sign that policy makers need to heed. Fortunately, at this stage, the proportion of customers falling behind on mortgage repayments remains low, but when the mid-year mortgage cliff kicks in, when fixed rate loans convert to variable rates of interest, that’s when borrowers having to sell or simply walking away from their home and debt could escalate.

“Interest rates are a blunt tool. What we’re looking at in our portfolio is who might need help,” Mr King told a business summit on Tuesday. “The part of the portfolio we’re watching very closely (is) high debt to income — that’s people who borrowed to their maximum debt capacities.” (theaustralian.com.au)

Meanwhile, ANZ’s boss Shayne Elliott told a Brisbane conference that the banking crisis and the central banks’ battle with inflation won’t go away soon. However, The Australian revealed that Treasurer Jim Chalmers had talked to the US Treasury Secretary Janet Yellen and the European Central Bank president Christin Lagarde and said “it’s clear from my conversations that international authorities are prepared to do what’s necessary to reassure markets at a time of uncertainty and volatility”.

That’s good news but one thing’s for sure, Mr Elliott might have banking insights, and being wary of other banks shocking stock markets can’t be ruled out. But when it comes to guessing what happens to inflation, banking CEOs have no visibility advantage over professional economists. And none of them really know what the mortgage cliff will do to spending, economic growth and then inflation. So why is there less certainty about how the change from fixed rate home loans to variable rate loans will hit shoppers, and then what shops and other businesses do with their prices to impact inflation?

That’s simple, we’ve never had so many people on fixed rate home loans. “According to analysis from AMP Capital, fixed lending usually makes up 10-15 per cent of the total mortgage market, but that number quadrupled to over 40 per cent last year,” 9news.com.au has reported. “That's where the concern comes from,” said Diana Mousina, a senior economist with AMP.

Many will roll off fixed-term loans in the second half of 2023, Mousina said, leaving up to 1.3 million borrowers scrambling to cope with much higher monthly repayments.

The RBA is very close to a pause with its rate rises, but today’s monthly Consumer Price Index number will be important. The last reading was 7.4%, so any result with a 6% in it will be seen as inflation-beating progress and could help the RBA hold back on another rate rise.

By the way, on this week’s Switzer TV, I look at how you should invest in a banking crisis. My guest is buying not selling, seeing it as an opportunity and not a threat. See it here: https://switzer.com.au/the-experts/switzer-tv/should-you-invest-and-ignore-the-banking-crisis/