Joseph Healy paints a bleak picture of rising risk for banks with ‘eye watering’ household debt.
Joseph Healy says he’s “paranoid about what could happen” as the Reserve Bank works to rein in inflation while avoiding a recession, a situation he describes as a “cocktail of circumstances for which there is no precedent”.
The comments come after a nasty 10 days for bank investors. In that period, Commonwealth Bank fell 16 per cent to $87.66 on Friday, its lowest level since April last year. CBA is down 7 per cent this week, including more than 3 per cent on Friday. Westpac has performed even worse, falling 21 per cent over the past 10 days, since the Reserve Bank went harder-than-expected lifting the cash rate by 50 basis points.
“I am nervous about the psyche that says, ‘she’ll be right, don’t worry about it’. You are better being prepared for the worst and hoping it doesn’t happen, than saying ‘we don’t expect issues to emerge and we will all be OK.’”There is some reason for relative optimism. Although the global prospects of recession are very high, he says Australia is better placed due to its natural resources and agriculture, commodities that the world needs.
Judo Bank’s Joseph Healy says the level of household debt is eye watering, making the RBA’s inflation fight much tougher.the biggest increase in 16 years, “the inflation psychology is locked in the minds of employees and people are expecting 5 to 8 per cent wage increases, and business are going to have to deal with that - and you are dealing with it in a world of very low unemployment where it is hard to hold on to talent,” he says.
“The risk if you don’t accept short-term pain if you have long-term pain,” he says. “But in Australia, the issue is complex because the level of household debt is eye watering. And while the central bank is independent, there comes a point when politicians will find the amount of pain to be inflicted is intolerable from a political perspective.”
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