RBA Governor Philip Lowe has told a Senate estimates hearing that the central bank’s rapid cash rate increases are not responsible for the current rental crisis, instead placing the blame on a lack of housing supply relative to demand.
Dr Lowe made the comments in response to a question from Greens Senator Nick McKim about the link between the RBA’s cash rate decision and the skyrocketing cost of rents in cities like Sydney and Melbourne.
Dr Lowe said it was unlikely that landlords putting up rents to compensate for increased mortgage repayments was the root of the problem.
“With population growth picking up again, we need more construction of dwellings,” he said.
“Otherwise we’re going to be in a situation of strong rental growth for a long period of time and it isn’t because interest rates are going up.
“It’s because the supply of rental accommodation is short relative to the demand.”
During his Senate estimates appearance Dr Lowe said that it was likely more cash rate rises were on the way.
He said headline inflation – which sat at 7.8 per cent on the most recent reading – was “way too high”.
“I’ve got to contain inflation,” he said.
“I’ve got to convince the community that we’re serious about that; that’s our job and it’s unpopular and I accept that.
“People are really hurting, I understand that, but I also understand that if we don’t get on top of inflation it means even higher interest rates and more unemployment.”
Dr Lowe also said the anticipated ‘mortgage cliff’ – the term used to describe households transitioning from a low fixed-rate to a higher variable rate – would affect households differently.
Households who had used their low fixed-rate loan as an opportunity to build up a savings buffer would be well-placed to deal with future cash rate rises.
“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,” he added.
While Australian households had managed to amass record levels of savings during the pandemic, it was unclear how households would use this money, he said.
“Lower-income people, obviously, haven’t got the same savings as higher-income people,” he said.
“And one of the analytical issues we’re grappling with here is how do people view these savings?
“Do they see them as just an increment to their wealth that they can spend over coming years?
“Do they view it as a piggy bank that they can go and use over the next little while?
“So we don’t know the answer to that and it’s one reason we’re watching the spending data very, very carefully.”
Dr Lowe isn’t the only banking head to face a parliamentary grilling, with the heads of Commonwealth Bank, ANZ, NAB and Westpac also ordered to face a parliamentary economics committee to be questioned about whether customers are getting a fair deal as interest rates skyrocket.
