Barefoot Investor Scott Pape says RBA boss Philip Lowe’s rates forecast not an excuse for debt trap

The Barefoot Investor criticized a homeowner for borrowing too much from the bank and blaming the head of the Reserve Bank of Australia for his troubles.

Scott Pape issued the scathing takedown of homeowner Ben after he revealed he was considering legal action against Philip Lowe.

Ben said he had taken out a sizeable loan and based his decision on Dr. Lowe’s 2021 forecasts, where he predicted interest rates would stay at record lows until 2024.

Interest rates rose for the ninth straight time in February, raising the cash rate to 3.35 percent, causing more financial problems for borrowers.

Mr. Pape agreed with Ben that the RBA boss should be held accountable and benched for the disastrous rate forecast, but told the owner to take responsibility for his actions.

‘Did you really base a significant long-term financial decision on a relatively short-term prediction from the Reserve Bank?’ Mr. Pape wrote in his Sunday Column for the mail.

An excited Ben had written to Pape that the RBA boss needed to take responsibility for his actions.

“How can the head of the RBA make unequivocal statements (not predictions) that interest rates won’t rise until 2024 and then wash his hands of not taking responsibility for the (financial and mental) trauma his words have caused?” he wrote.

He said that because he borrowed the money based on that forecast, he was in “severe financial stress.”

Ben said that he had approached his lawyer to determine his legal options, saying that he “would gladly join any class action lawsuit that may be coming up.”

Pape responded that he thought Dr. Lowe had “stuffed himself like a king” and should be “locked up” as a consequence.

He noted that the RBA’s fuller statements said there was incredible uncertainty surrounding Covid and the global economy, which is why Dr Lowe should have put away “his crystal ball”.

However, Pape said that most people had just heard the media amplifying Dr. Lowe’s sound bite and that the same media was now calling for ‘his head’.

“It’s not financial advice, it’s financial pornography, plain and simple,” he wrote.

“Look, nobody put a gun to your head and told you to borrow too much money when interest rates were at their lowest levels in recorded history.”

Dr. Lowe (pictured) was forced to defend himself and the Reserve Bank’s actions in rapidly rising rates during parliamentary hearings.

Appearing before Parliament this week, Dr Lowe warned that the rate increases had yet to be done, despite admitting that it is “very, very difficult” for borrowers.

The RBA governor told a Senate hearing in Canberra that the ninth consecutive hike this month, taking the cash rate to a 10-year high of 3.35 percent, would be far from the last.

He warned that more pain was needed to avoid a repeat of 1990, when RBA rates were at 17.5 percent.

“There is a risk that we haven’t done enough on interest rates yet and spending will be more resilient and inflation will remain high,” Dr Lowe said.

“If inflation stays high, it’s very damaging to the economy, it worsens income inequality, it makes it harder for companies to plan, it erodes the value of people’s savings, it’s corrosive to the economy.”

Variable-rate borrowers are already seeing a 43 percent increase in their monthly payments over the past nine months.

With fixed-rate borrowers facing a 65 percent increase in 2023, Dr. Lowe acknowledged that it was “very, very difficult for some people” who would have to fight “a very large increase in their mortgage payments.”

Dr. Lowe noted that, unlike politicians, he could make unpopular decisions to address inflation, which sits at 7.8 percent.

“It’s easier for me to do unpopular things than for some of you,” he said.

‘When we raise interest rates…it’s unpopular in much of the community, particularly given the track record of lower interest rates over the years.

‘It is unpopular and it is the job of the central bank to do what is unpopular in the national interest and that is what we are doing.

‘If we don’t take care of this, the pain will be worse.’

The RBA governor told a Senate hearing in Canberra that the ninth consecutive increase this month, which takes the cash rate to a 10-year high of 3.35 percent, would be far from the last (pictured , the houses in Oran Park in south-west Sydney)

But Dr. Lowe, who has a compensation package of $1,037,709, said he understood borrowers were making it “very, very difficult.”

“I read those letters and listen to those stories with a very heavy heart,” he said.

I find it disturbing. People are really suffering, I understand that, but I also understand that if we don’t beat inflation, it will mean even higher interest rates and more unemployment.”

Lowe said he intended to serve out the remainder of his seven-year term, which ends Sept. 17, despite calls for him to resign for suggesting 2021 interest rates would remain unchanged until 2024.

“It’s important work that comes with public accountability as part of that process.”

The governing board voted Tuesday of last week to raise the cash rate for the ninth straight month to a new 10-year high of 3.35 percent, adding another $93 per month to payments on an average $600,000 mortgage.

The typical Australian borrower with a 30-year loan now pays 43 per cent or $997 more per month on their variable home loan compared to early May last year.

His annual payments are already $11,964 higher than nine months ago, despite Lowe’s promise in 2021 to keep interest rates at a record low of 0.1 percent through 2024 “at the earliest.”

Dr Lowe said it would be “reckless” and “absolutely insane” for the government to intervene to reverse its latest rate hike, as average variable-rate borrowers already endure a 43 percent increase in their monthly payments over the past few years. nine months.