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RBA’s Lowe warns interest rates ‘have not peaked’

RBA governor Philip Lowe defended the central bank lifting interest rates.

A composite image of RBA governor Philip Lowe and Australian money.
RBA governor Philip Lowe said interest rates will continue to rise. (Source: Getty/AAP)

Reserve Bank of Australia (RBA) governor Philip Lowe has defended the central bank’s decision to lift interest rates for nine consecutive months.

The RBA boss said, while he acknowledged the pain many Aussie households were feeling from the hikes, they were not over yet.

“I don't think we're at the peak yet. How far do we have to go up? I don’t know ... we're still unsure,” Lowe told the Senate Committee.

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Lowe said even more pain may be felt by the roughly 800,000 Australians who were going to come off their fixed mortgage rates some time this year.

“I want to acknowledge that it is really, really hard for some people. Some people are going to find a very big increase in their mortgage payments. It's really hard, but other people are better prepared,” Lowe said.

“The banks tell us that most of the people with fixed-rate loans have been pretty cautious. They knew interest rates weren't going to stay low forever. They've taken a low interest rate for two, three or four years as a bonus and saved some. That's good. Not everyone is in that case, though.

“Some people have taken the low interest rate to allow them to spend more and those people are going to face a lot more difficulty when interest rates go up by 3 per cent.”

That is not to say interest rates are going to go up by a further 3 per cent - but for those who took out a fixed loan when rates were at 0.1 per cent, they will face a jump of more than 3 per cent when their fixed term ends.

Why are rates still going up?

Lowe explained to the committee that inflation was by far the biggest threat to the economy at the moment.

“If inflation stays high, it's very damaging for the economy. It worsens income inequality. It makes it harder for businesses to plan and erodes the value of people's savings. It's corrosive for the economy,” Lowe said.

“All the evidence is that if inflation stays high for too long, expectations adjust, and that ultimately leads to higher interest rates and more unemployment.

“It's been 30 years since we had higher inflation and many people have forgotten the really serious damage that does to people's livelihoods and the functioning of the economy.”

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