Former RBA governor Ian Macfarlane says the housing market is the big hurdle for the central bank as it raises rates, but it can’t be “hostage” to home buyers.
: how much pain is the central bank prepared to accept in the country’s highly indebted housing market to get inflation back under control?the former RBA governor who was responsible for introducing Australia’s inflation target in 1996
“They can’t be really held hostage by the most recent of these borrowers. It was always the case whenever the central bank raised rates and the mortgage rate went up, whoever were the most recent borrowers always found themselves in a position where they’re servicing cost is higher than their original agreement.
But Macfarlane sees hurdles that might prevent the Fed and the RBA raising rates as far as needed to get inflation under control. But Macfarlane does provide one ray of hope for housing: his experience tells him that households will make many sacrifices before they default on their mortgage.
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