ANZ boss issues dire warning to homeowners - and anticipates a big challenge ahead for Australia

ANZ chief executive Shayne Elliott has warned Australians to expect interest rates to stay high for years with no relief in sight.

The Reserve Bank in November raised interest rates for the 13th time in 18 months, taking the cash rate to a 12-year high of 4.35 per cent. 

While inflation in October moderated to 4.9 per cent, the annual level still remains well above the RBA's 2 to 3 per cent target, with the RBA itself blaming high immigration for fuelling service price pressures.

Mr Elliott warned borrowers interest rates were likely to stay high for years to come, with cuts unlikely in 2024 or even 2025, as 'baked-in' government spending on defence, the NDIS, renewable energy and transport infrastructure kept inflation elevated.

'You have to stand back and forget next year – just think about over the next five years,' he told The Australian.

He said federal government spending and high immigration were adding to price pressures.

'Everything Western governments, including Australia, want to do is fundamentally inflationary,' Mr Elliott said.

'Even in the very short term, higher levels of immigration are adding growth pressures to the Australian economy.'

More than 400,000 migrants, on a net basis, moved to Australia in the year to September and the Reserve Bank is expecting inflation to remain above three per cent until late 2025.

Mr Elliott said the Australian government would have to give up massive infrastructure projects if they wanted lower interest rates. 

'If we still want to do all those things, something else has to give.'

Reserve Bank of Australia Governor Michele Bullock last week told a Hong Kong conference of central bankers that high immigration was adding to inflationary pressures.

'The other thing that's going on is we've had very strong immigration in Australia,' she said.

'And even though we see consumption per person declining, in total consumption has held up.

'It's not particularly strong but nevertheless it's strong enough.

'That has also meant that demand has held up.

'That's the reason why we're seeing services price inflation is quite sticky in Australia.' 

Mr Elliott is far less optimistic than the OECD which last week revealed it is expecting the RBA to cut rates three times, starting in the September quarter of next year and continuing until late 2025.

This would see the cash rate fall back to 3.6 per cent for the first time since May 2023. 

The futures market is expecting rates to stay at present levels until February 2025.

Mr Elliott said spending on defence, transport infrastructure, the National Disability Insurance Scheme and renewable energy would add to inflationary pressures.

'Those things are going to be inflationary,' he said.

The federal government delivered a Budget surplus of $22.1billion for 2022-23, the first since 2007 and the first for Labor since 1989.

But Treasury's Intergenerational Report, released in August, predicted deficits until 2063, following this one-off surplus based on higher commodity prices boosting government revenue.

The AUKUS deal with the US and the UK will see $368billion earmarked for eight nuclear-powered submarines until the mid-2050s.

The most aggressive monetary policy tightening since 1989 has, in 18 months, seen variable mortgage rates climb from levels starting with a 'two' to levels approaching seven per cent. 

Financial comparison group Finder's Cost of Living Pressure Gauge showed 79 per cent of were stressed about their finances in November.

Graham Cooke, Finder's head of consumer research, said rate rises were diminishing savings.

'As households look to stretch their budgets further, this affects their ability to create a decent savings buffer to protect themselves from further pressure,' he said.

Ms Bullock noted high immigration had also boosted the supply of labour after businesses called for population growth during the pandemic.

'At the same time as immigration has added to demand, it's added to supply because we've had a very tight labour market,' she said.

'As we were coming out of the pandemic, that was one of the cries of businesses - they couldn't get labour.' 

The Reserve Bank is widely expected to leave interest rates on hold on Tuesday but they could rise again in February if December quarter inflation data, due out in late January, is on the high side.