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Costello warns of 'painful' rate rises

Finance Markets / Market Trends

Australia

Mar 22 2018

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Former federal treasurer and chairman of the Future Fund, Peter Costello says the consequences of rising interest rates will be “slow and painful” for Australian households, and the housing market generally. 

Speaking at the Urban Development Institute of Australia conference, Mr Costello said Australia’s low level cash rate of 1.5 per cent - 7.5 per cent a decade ago - had remained on hold despite the US Federal Reserve beginning to normalise interest rates from emergency levels.

“It’s going to be slow and it could be painful and the question is will it be a hard landing or a soft landing but it’s going to be a landing,” Mr Costello said. 

Australia’s high level of household debt - about 200 per cent of incomes - was no surprise to Mr Costello because “we made money so cheap”. 

He said while banks were currently on the nose, they’d been strong throughout the Global Financial Crisis ten years ago. 

“One thing I always used to say when I was treasurer is this: I’ll tell you what’s worse than a very profitable bank — a loss-making bank.”

Mr Costello said it was now important that banks were responsive and accountable, while also remaining strong and prudential.

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