PHOTO: Got mortgage stress yet? If not, it’s coming. FILE
- Reserve Bank of Australia governor Philip Lowe warning of higher interest rates
- He said it would be at least two years before inflation back to 2-3 per cent target
- Dr Lowe was confident Australia would avoid a recession despite rising rates
- But he said wages growth of more than four per cent could feed high inflation
Australia’s most powerful banker is urging borrowers to prepare for more interest rates rises with inflation expected to remain high for several more years.
Reserve Bank of Australia governor Philip Lowe said it would be at least two years before inflation fell back within its two to three per cent target.
This would mean several more interest rate rises in 2022 before inflation peaked later this year at the highest level in 32 years, eroding the savings buffer of borrowers.
‘As interest rates start to rise, those buffers will be eaten into and the fact that households have more debt than they used to, it will start to bite,’ Dr Lowe told the American Chamber of Commerce in Australia on Tuesday.
‘We’re very conscious of that.
‘As an individual, I am concerned about the people who borrowed too much and who could get themselves into trouble.
‘Make sure you have buffers, be prepared, the future’s uncertain.
‘Some people will have problems, and as an individual, that saddens me.’
Without unemployment at the lowest level in 48 years, Dr Lowe sounded the alarm about surging wages potentially feeding inflation like the 1970s – leading to even higher interest rates.
Reserve Bank of Australia governor Philip Lowe said it would be at least two years before the inflation fell back within its two to three per cent target
New Commonwealth Bank forecasts on RBA cash rate
JULY: Up 0.5 percentage points to 1.35 per cent
AUGUST: Up 0.25 percentage points to 1.6 per cent
SEPTEMBER: Up 0.25 percentage points to 1.85 per cent
NOVEMBER: Up 0.25 percentage points to 2.1 per cent
Dr Lowe told the AmCham event in Sydney inflation would remain above the RBA’s target for at least two more years as petrol and electricity prices remained high.
‘It’s a couple of years away,’ he said.
‘It’s going to be some years before inflation’s back in the two to three per cent range.
Dr Lowe last week predicted inflation would hit seven per cent by the end of 2022 for the first time since late 1990.
Headline inflation in the year to March surged by 5.1 per cent – the fastest pace since 2001 with $2 a litre petrol making up a quarter of that increase.
The underlying measure of inflation, known as the trimmed mean stripping out volatile items like petrol, rose by 3.7 per cent.
The Reserve Bank in May raised the cash rate by 0.25 percentage points, marking the first increase since November 2010.
This ended the era of the record-low 0.1 per cent cash rate, taking it to 0.35 per cent.
Another rate rise followed in June, with the 0.5 percentage point increase the steepest since February 2000.
Dr Lowe told the American Chamber of Commerce in Australia on Tuesday he was concerned about borrowers who had taken on too much debt (pictured is an auction at Hurlstone Park in Sydney)
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