Reserve Bank of Australia governor Philip Lowe says inflation will peak at a “very high” 7 per cent late this year, but an extra $250 billion of savings will help households contend with cost of living pressures and falling house prices.

Dr Lowe said it was “reasonable” to expect the cash rate to eventually reach 2.5 per cent, in line with the midpoint of the inflation target, but he admitted it was “unclear” how high rates would go and how quickly.