A senior Reserve Bank official has said out loud what many borrowers already suspected: households are carrying most of the load in the fight against inflation. The bank says government spending keeps demand and prices elevated, but it has no say over what governments spend. That, she said, is a matter for voters at elections.
That admission matters for anyone with a mortgage or an investment loan. When one arm of policy cannot be adjusted, the other has to work harder.
The lever the bank can’t pull
The RBA has one main tool: the cash rate. Higher borrowing costs are meant to slow household spending until demand lines up with supply. State and federal budgets add to that demand, but the bank cannot trim them.
The result is a lopsided adjustment. Spending by governments carries on, so the bank leans on the part of the economy it can reach, which is households with variable-rate debt.
The official in question advises the governor and the monetary policy board but does not hold one of the nine votes. Her comments are context, not a decision. Still, they show how the bank sees its own limits.
What four hikes and a 4.6% cash rate mean in dollars
Rates have been lifted four times since February. The cash rate now sits at 4.6%. One more increase would take it to its highest point since the financial crisis of 2008-09.
The cost is easy to put a number on. Each rise adds roughly $120 a month for someone holding a $750,000 mortgage. Four rises is not a rounding error in a household budget.
A further move before Christmas is widely expected. The official declined to signal what the board will do at its 5 November meeting, so treat that as an expectation, not a promise.
If you want the mechanics of how a rate change flows into your repayment, our guide to RBA rates and repayments walks through it.
Key numbers
- Cash rate: 4.6%
- Rate rises since February: four
- Extra monthly cost per hike on a $750,000 mortgage: about $120
- Next board meeting: 5 November
Oil adds a second squeeze
The official also warned that rising oil prices will push fuel and food costs higher again before they ease. That is the part many households will feel at the checkout and the bowser, on top of repayments.
For the rate path, this is the awkward bit. If fuel and food feed back into headline inflation, the bank has less room to pause. A cost-of-living shock from outside the housing market can keep rates higher for longer than a borrower budgeted for.
Why spending and rates pull in opposite directions
Here is the catch. Government spending can support demand while rate rises squeeze it. The two forces partly cancel out, which can stretch out the time it takes to get inflation back to target.
That is the fiscal-monetary tension in plain English. It does not mean the budget is the sole cause of inflation. It means the bank’s job gets harder, and the price of that difficulty lands on mortgage holders.
The official said she hopes the problem is resolved within a few years. That is a long horizon for a household stretching to cover repayments.
What this means for property prices
Higher rates reduce borrowing capacity. A buyer who could borrow a given amount last year can borrow less now, which tends to cap what they will bid. Prices do not fall in a straight line, but affordability limits are hard to argue with.
Timing matters, too. Rate changes work with a lag, so some of the damage from earlier hikes may still be working through the market. Our piece on the hard landing question looks at how that risk could play out for property.
The official also said the board is concerned some borrowers could lose their homes. That is worth taking at face value. Stress shows up first among recent buyers with thin buffers and high loan-to-income ratios.
Fixed or variable from here
If another rise is likely, the fixed-versus-variable question gets sharper. Locking in only wins if rates end up higher than the fixed rate you accept. Our look at the break-even rate for fixed versus variable loans shows how to test that against your own loan.
The practical step
Run your repayments at a rate one or two steps above today’s. If the numbers still work, you have a buffer. If they do not, talk to your lender about options now, not after a missed payment.
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General info, not financial advice.
