In a parliamentary committee hearing, Philip Lowe, the head of the Reserve Bank of Australia, talks about interest rate hikes.
Australians who have a mortgage are warned to get ready for more pain in their hip pockets.
The head of the Reserve Bank of Australia has given a dire warning to homeowners because he almost guarantees that interest rates will go up again.
Dr. Philip Lowe went before a parliamentary committee in Canberra on Friday. This was after the cash rate had been raised five times in a row.
The interest rates on Australian mortgages went up again on Tuesday, making it the fifth time in as many months that rates have gone up.
The official rate was 0.1% at the beginning of the year, mostly because of the pandemic. It is now 2.3%.
Even though Lowe said before that the interest rate wouldn't change until 2024, it hasn't.
When the RBA board raised the interest rate for the first time in May, only a few weeks before the federal election, they said it was because of rising inflation and a better-than-expected recovery from the height of COVID.
Lowe said at the time, "The board decided that now was a good time to start taking away some of the extra money that was put in place to help the Australian economy during the pandemic."
"The economy has shown itself to be strong, and inflation has risen faster and higher than expected."
On Friday, Lowe kept trying to explain why the board made the decisions it did.
He said that it's likely that the interest rate will go up again, but it's likely that it will go up by less than 0.5%.
He also said that he thought house prices would go down by as much as 10% all over the country.
"As interest rates go up even more, and they will go up even more, I think the housing market will cool off and prices will go down even more," he said.
But he warned that people who want to buy a home should still be careful because prices have gone up 25% in the last two years. This means that values are still about 15% higher than they were three years ago.
Also, inflation is likely to keep going up until the end of next year, when it will return to normal.
Lowe said that the headline number would probably reach a high of close to 8% later this year and then go down to 4% by the end of 2023.
Lowe told a parliamentary committee in Canberra, Australia, on Friday morning that the balance between the demand for and supply of goods around the world is getting better.
But he says that interest rates will stay high as long as inflation continues to rise.
"Interest rates will need to be much higher next year if inflation stays at 6% or 7%," he warned.
He said that the Reserve Bank was not to blame for the price of housing.
Instead, he said that it was mostly because of problems with zoning, taxes, and transportation that hadn't been fixed.
"If you asked me what choices society has made that have led to high housing prices, I'd say we've made them all, whether they were good or bad," he said.
"It's because of the choices we've made: the choices we've made about taxes, the choices we've made about zoning and urban planning, and the fact that most of us have chosen to live in great cities on the coast."
He also talked about the problem of rents going up.
He said, "Some landlords have been saying that higher interest rates will cause rents to go up because they have higher costs of financing, which they will pass on to rents in a tight rental market."
"I don't think that will have a big impact on inflation."