Savings to be hit by rising debt and rates

Monday 27 September 2010

Article by Mozo

Australians will be forced to eat into their savings to cover rising levels of debt over the coming year, an expert has suggested.

JP Morgan economist Helen Kevans noted that the current level of interest repayments as a proportion of disposable income is about nine per cent.

However, in an interview with the AAP, she argued that the Reserve Bank (RBA) was likely to lift the cash rate by 100 basis points over the next 12 months, thereby putting repayments "back to pre-crisis levels".

"Interest repayments as a per cent of disposable income will be back up around that 12 per cent level, which is a big concern," she added.

Rising debt levels could prompt more Aussies to compare savings accounts in search of the best returns. As the AAP observed, a number of recent economic surveys have revealed that people are saving a smaller proportion of their income at a time when consumer debt is rising and personal bankruptcies and commercial tenancy defaults are also expected to go up.

The news comes after Paul Bloxham, who recently left his position as head of financial conditions at the RBA for a job at HSBC, predicted there will be five interest rate hikes by the end of next year.

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