Persistently high inflation in the United States could see the world's most powerful central bank delay cutting interest rates. But does that mean Australia will do the same? Alan Kohler explains when borrowers here might be able to expect some rate relief.
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00:00 To cut or not to cut?
00:04 That is the question for interest rates this year.
00:06 Now in the United States, rate cuts are hanging by a thread.
00:10 But what about ours?
00:12 Well, we're different.
00:15 We might be close allies and we might speak a version of the same language, but we're
00:18 not the same.
00:19 And the differences matter.
00:22 Look at this for a start.
00:23 Even though their cash rate is 5.5%, more than a full percentage point higher than ours,
00:28 the interest rates actually paid by Australians have increased more than 3%, versus half a
00:33 percent for Americans.
00:35 Why?
00:36 Because Americans have mostly got 30-year fixed rate mortgages, and we've mostly got
00:40 variable rate loans.
00:42 So Reserve Bank rate hikes get passed on immediately to almost everyone.
00:47 And this, house prices in the US have tripled in the past 20 years, but in Australia, they've
00:53 quadrupled.
00:54 As a result, we've got more debt.
00:57 And the combination of those two things has meant our debt service ratio, which is aggregate
01:01 debt repayments as a percentage of income, has skyrocketed since the pandemic.
01:07 Whereas in the US, it stayed roughly the same and is well below what it used to be.
01:12 With the result that household consumption has collapsed in Australia, while in the US,
01:17 it's kept growing.
01:18 Australians are weighed down by expensive houses and a total absence of long-term fixed
01:24 rate mortgages, both thanks to past government failure and stupidity.
01:29 But at least those burdens weigh on inflation as well.
01:33 [BLANK_AUDIO]