RBA chief again concedes possibility of 2022 rate hike

Philip Lowe tells a parliamentary committee that a rate rise this year would be a "shock" to some borrowers

RBA chief again concedes possibility of 2022 rate hike

The head of the Reserve Bank of Australia has again conceded that interest rates could rise this year. RBA Governor Philip Lowe told a parliamentary committee Friday that a rate rise this year would be a “shock” to some borrowers, but that others had got ahead on their mortgages.

The committee was examining the Central Bank’s annual report, according to The Australian. While Lowe again conceded a hike this year was plausible, he wouldn’t specify in which month the RBA’s first rate increase since 2010 might come.

Lowe said the median Australian household had doubled its mortgage “buffer” from one year to two, The Australian reported.

“That means that when interest rates go up, there will be a large number of households that don’t have to adjust their mortgage repayments for a modest increase in interest rates,” he said. “There are a large number of households that don’t have the buffer, and they will have to increase their mortgage payments.”

Lowe said the RBA looked at these buffers “a lot” because they influenced how households would react to a rate rise.

“Many people are focused on – and I think rightly – the level of household debt relative to income is at a record high, so the stock that higher interest rates will apply to has increased,” he said. “I imagine when th4e time comes, that will be a shock to people who had only got used to interest rates falling.”

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Lowe told the committee that the economic conditions needed for the RBA to hike rates could come this year – a concession he made for the first time only recently. Lowe had previously forecast rates could rise in 2023, but more likely 2024. However,  the economy has recovered faster than expected and inflation has blown past predictions, The Australian reported.

“We’re looking at the evidence and data, and it’s plausible that rates could go up sometime this year,” Lowe said. “The higher interest rates will be occurring in an environment where people have got stronger wages growth and jobs, so we have to put all that together. We’ll learn as we go along this journey. The economy does have a lot of underlying growth momentum and resilience, so we’ll lift interest rates in an environment where the economy is doing well.”