The Reserve Bank reports more rate hikes, even as one in 10 adjustable-rate mortgage holders is already in pain

“If inflation expectations remain well anchored, supply-side problems are addressed, wage growth and wage-setting do not pick up too fast, and we can get back on the narrow path I was talking about earlier,” he said.

“So that’s a plausible scenario: that rates go up and then fall again next year. But a few things have to be right for that. It is possible, but there are other scenarios as well.”

Reserve Bank Deputy Governor Brad Jones said households with mortgages were under “very uneven” pressure.

He said about half of adjustable-rate owner-occupiers are more than a year in advance on their mortgage payments and a third are more than two years in advance, but on the other end of borrowing, it’s a different story.

“We observe about 10 percent of adjustable rate owner-occupier borrowers who have virtually no free cash flow after paying off their mortgage payments and living expenses. [They] also have very low buffers,” he said.

Those households were overwhelmingly low-income, Jones said, and had limited ability to cut spending.

“There is no question that there is a part of the community that is suffering now and very likely will remain so. That certainly plays a big role in our internal discussions,” he said.

On Friday, Westpac said 45 percent of its home loans were originated with stress test buffers of up to 3 percentage points over the three years to June 2022, warning that those buffers would do so if the official cash rate reached 3.85 percent were exceeded . The bank also reported a slight increase in the proportion of customers who missed loan payments.

It’s not just mortgage-backed households that are feeling the pressure. Rents rose 4 percent last year, but asking rents have skyrocketed and the Reserve Bank expects prices to continue to rise as people sign new leases.

Loading

Lowe acknowledged that higher interest rates would put pressure on landlords, but they couldn’t raise prices when there were many rental properties on offer.

“The critical problem here is the lack of rental housing. That’s what drives higher rents, it’s not higher interest rates,” he said.

Higher interest rates are also affecting savers, and the RBA governor said that while commercial banks would be quick to pass rate increases on to mortgage holders, they also need to do a better job of applying them to savings accounts.

“I worry about the lack of transmission of our interest rate decisions to higher deposit rates,” he said.

Treasurer Jim Chalmers announced on Wednesday that the Consumer Protection Agency is investigating banks’ savings rates, and Lowe said the review should encourage banks to raise them.

Loading

A day after the country’s unemployment rate rose to 3.7 percent in January, Lowe said higher unemployment was the “very expensive” price to pay to bring inflation down, but pointed out it was near 50 -year low remained.

“The proportion of working-age Australians with a job is at an all-time high, youth unemployment has fallen and underemployment is at its lowest in decades,” he said.

Independent MP Allegraspender asked what would happen to jobs and the broader economy if inflation stayed high.

“Unemployment is rising, people are losing their jobs. Real wage growth has been slow for a number of years. That’s the historical evidence,” Lowe said.

“And if inflation were to stay high, I think the evidence would repeat itself and we’d better learn from it.”

Break through the noise of federal politics with news, Views and expert analysis by Jacqueline Maley. Subscribers can sign up for our weekly Inside Politics newsletter here.