Reserve Bank governor Michele Bullock has flagged that more rate rises may be needed, as a growing number of borrowers struggle to make ends meet.
Reserve Bank governor Michele Bullock has used her first formal speech to warn borrowers another interest rate rise may be needed to control inflation, while revealing up to a quarter of highly leveraged people with variable mortgages are living beyond their means.
Financial markets put the chance of a rate rise at the RBA’s Melbourne Cup Day meeting at one in four. Bullock said the bank was mindful of trying to bring inflation down without damaging the jobs market.The country has shed 53,200 full-time jobs since June, with the unemployment rate being held down by a drop in the participation rate.
According to Bullock, about 5 per cent of all variable-rate borrowers – almost 200,000 households – are now paying more for essential expenses and their mortgages than they earn. Bullock said the bank wanted to ensure the public had confidence it would return inflation to its target band of 2 to 3 per cent. If those expectations shifted, and people believed inflation would be higher for longer, the Reserve would have to tighten monetary policy even further.“The board has been clear that it has a low tolerance for allowing inflation to return to target more slowly than currently expected,” she said.
It found generally weak demand, with inflation pressures and high interest rates cited by survey participants as key factors contributing to lower new business.
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