Lowe Facing Tough Questions Over RBA Rate Hikes and their Devastating Effects

10% of Variable Rate Mortgage Holders Struggling to Make Ends Meet as RBA Raises Interest Rates

 The Reserve Bank of Australia’s (RBA) Governor, Philip Lowe, has recently been facing questioning by federal politicians about rising interest rates, inflation and Australia’s cost of living crisis.

With the RBA having lifted the official cash rate a record nine consecutive times since May to 3.35 per cent this month, this has resulted in soaring interest rates, with one-in-ten variable rate mortgage holders now being in financial stress.

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The RBA has opted to aggressively raise rates in a bid to tame runaway inflation, which reached 7.8 per cent in December, its highest since 1990.

Despite this, Governor Lowe has conceded that the central bank “did too much” when it dropped the cash rate to just 0.10 per cent during the pandemic, and has since had to “backtrack”.

At the same parliamentary hearing, RBA assistant governor Brad Jones highlighted the disparity between Australian households in terms of how much they are struggling with interest rates.

He revealed that about half of variable-rate owner-occupiers are more than a year ahead on their mortgage payments, and a third more than two years ahead, yet about 10 per cent of variable-rate owner-occupier borrowers have “virtually no spare cash flow” after their mortgage payments and their living costs.

Governor Lowe has explained that the RBA is navigating a “narrow path” between reining in inflation and falling into recession, and if the economy stays its current course, interest rates could start to come down in early 2024. Despite this, the market is still tipping the RBA to lift the cash rate as high as 3.85 per cent before next year.

The Governor has been open about the difficult path that lies ahead and the consequences it may have on Australian families. Despite this, when questioned on what keeps him awake at night, he joked he’d like to be in the media less.

Governor Lowe’s statements, however, have highlighted the difficult balancing act that the RBA has to perform in order to effectively manage the economy and prevent it from falling into a recession.

On the one hand, it must take the necessary steps to reduce inflation, but on the other, it must also take into consideration the potential impact that raising interest rates could have on the Australian public.

The RBA is therefore tasked with finding the right balance between controlling inflation and managing expectations, while at the same time taking into account the potential impact that this could have on businesses and households.

This requires a delicate balancing act, as raising rates too quickly could lead to a recession, while not raising them quickly enough could result in an over-inflated economy.

Ultimately, the RBA must take a long-term view and consider the potential implications for the entire economy.

The Governor’s recent statements suggest that the RBA is taking this into account and is doing its best to navigate this difficult path.