EXCLUSIVE: In a special Momentum Media podcast episode, the Yellow Brick Road founder slammed the central bank for smashing borrowers with the rate rise hammer to chase an inflation target that may be outdated.
Mark Bouris, the founder of Wizard Home Loans and Yellow Brick Road.
In a freewheeling chat with Phil Tarrant, director of Momentum Markets, Mark Bouris covered a broad range of topics including the Reserve Bank of Australia’s (RBA) rate rise cycle (which began in May 2022), why the inflation target needs to be more “realistic”, and how it could be determined.
Australian borrowers were subject to high interest rates in the late 1980s and early 1990s but the nation should have learnt lessons by now, Mr Bouris said.
“Surely we don’t have to have the same blunt instrument that the Reserve Bank has [now], as they did back then,” he said.
“Instead of taking us through nice and gently and allowing us to have a soft landing that everybody likes to refer to, we have Thor’s hammer smashing the crap out of us.”
The RBA raised the official cash rate last week for the 10th consecutive month by 25 basis points to 3.60 per cent.
Mr Bouris said he finds this concerning, particularly given Westpac chief economist Bill Evans’ recent predictions that the RBA would slash rates seven times (or 175 bps) over the course of 2024 and 2025 to a low of 2.35 per cent (starting from the 2024 March quarter).
“Why should we get brain damage from rate increases, [and] then the expectation of rate reductions?” he said.
“Can’t we do this a little bit more intelligently? We must be better than that. We must have learned something from [the 1990s] so we can do better today with [fewer] ramifications.
“I’m saying less brain damage.”
Obsession with inflation target alarming
In his March monetary policy decision statement, RBA governor Phillip Lowe reiterated the board expects further monetary policy tightening to reach its target target range of 2-3 per cent, but warned that the path to achieving a “soft landing” remains narrow.
However, Mr Bouris said he is “not alarmed” by the current inflation rate of 7.8 per cent.
“What does alarm me though, is this complete and absolute focus on getting us back to this so-called 2-3 per cent [inflation],” he mused.
“I don’t know what the magic is in 2-3 per cent. It was first derived and laid on us in the marketplace by the RBA in 1996, and that’s a long time ago… I don’t know how relevant that is today given what we’ve just gone through with COVID.”
Mr Bouris said it is unsurprising that inflation spiked, given that an “unprecedented” amount of cash was injected into the economy during the pandemic.
“In fact, what I am surprised about is that it's not unprecedented inflation,” he remarked.
“Why isn’t inflation 15 per cent or 18 per cent or indeed, why isn’t Australia’s inflation at the levels of the US or Europe of over 10 per cent?
“What’s bothering me is that we’re trying to get ourselves under a 2-3 per cent inflation number given what we’ve just gone through,” he said.
Instead, he called for a revision of the RBA’s inflation target – even temporarily – to something that is more achievable to avoid stinging mortgagors further and allow for the lagging impacts of the last 10 rate rises to take effect.
“We should now review that 2-3 per cent as a mid-term or a medium-term goal and not a near term goal,” he said.
Fixed rate borrowers in for a shock
Alongside this, Mr Bouris warned that borrowers on fixed rates will be forced to pay the standard variable rate if they are unable to refinance.
The RBA recently told the Senate select committee on the cost of living that around 800,000 “loan facilities” could transfer from fixed rates to variable rates in the 2023 calendar year, totalling around $350 billion of credit that is “rolling off”.
“To be a fixed rate borrower, you more than likely borrowed in the last two or three years, which means your fixed rate is coming off this year or next year,” Mr Bouris said.
He concluded: “The banks know whether you're going to be able to refinance or not. They're more than likely to apply the standard variable rate, not the discounted rates.
“I don't think they'll price gouge intentionally, but they won't be sympathetic. For those people who they know can't go anywhere, they're more than likely going to try and hit them straight up with the standard rate.”
Listen to the entire podcast with Mark Bouris, here: