RBA boss Philip Lowe warns interest rate hold doesn’t mean increases are over

The Reserve Bank has sounded the alarm on the amount Australian homeowners will soon be making in mortgage repayments.

Mortgage holders will soon be forking out record-high repayments as the Reserve Bank of Australia warns a pause on interest rates doesn’t mean further hikes are off the table.

Governor Philip Lowe made the grim prediction during an appearance at the National Press Club on Wednesday, where he flagged soaring rents and high energy prices as key concerns for the central bank.

“We anticipate that required mortgage payments will reach a new record high of almost 10 per cent of household disposable income by the end of next year.” he told reporters in Sydney.

More than 800,000 Australians who took advantage of cheap loans during the pandemic will have their fixed-rate loans transitioned to variable rates by the end of the year.

Dr Lowe said while he does not like the term “mortgage cliff” – he prefers the term “ramp up” – feedback from lenders suggested many who had already made the switch were performing well.

RBA governor Philip Lowe warned that interest rate rises weren’t over. Picture: NCA NewsWire / Gary Ramage

“You have to remember that many of these people who have had fixed-rate loans for one, two, three years, have paid much, much lower interest rates than the rest of the community for that time,” he said.

The RBA put the pause on the most aggressive tightening of monetary policy since the 1980s on Tuesday to give the board more time to assess the effects of successive rate rises.

But that “does not imply that interest rate increases are over,” Dr Lowe stressed.

Economists for the big four banks predict there is one more rate rise to come but financial markets tip the central bank to keep the cash rate on hold in May.

The flow of data – including the quarterly inflation figure to be handed down later this month and household spending – would determine whether the RBA needed to “move higher”.

Australia’s inflation rate hit 6.8 per cent in the 12 months to February. The RBA forecasts inflation will return to its target 2-3 per cent range by 2025.

Dr Lowe warned about the need to bring the inflation rate down. Picture: NCA NewsWire / Gary Ramage

In his wide-ranging address, the bank boss said lingering supply side inflation drivers, such as housing and energy prices had complicated the return to the target range.

Not enough homes are being built to keep pace with the nation’s annual population growth, which Dr Lowe forecast to soon reach 2 per cent, placing further pressure on the nation’s rental crisis.

The vacancy rate remains at a record low of 1 per cent.

Tuesday’s decision made the central bank an outlier among its peers that continued to raise interest rates to tackle inflation amid concern about the global financial system.

Asked why, Dr Lowe said the board was willing to have inflation drop at a slower pace to balance high unemployment.

“Our judgment at the moment is that if we can get inflation back (to) 3 per cent by mid-2025, and preserve many of those job gains that have been delivered in the last few years, that’s a better outcome than getting inflation back to 3 per cent one year earlier and having more job losses,” he said.