According to RBA governor Philip Lowe, inflation must come down – no matter what

By Evlin DuBose · · 4 min read
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Collage of Philip Lowe

In a speech at the Morgan Stanley summit, Reserve Bank of Australia governor Philip Lowe explained the thought process behind this week’s unforeseeable hike to official interest rates. 

“Our job at the central bank is to make sure that this period of high inflation is only temporary. It is important that we are successful here,” explained Lowe. 

The RBA has come under heavy fire from angry home loan borrowers and renters copping the fallout from the rate hikes, given that no one expected them to go so high so fast. 

Many leading economists predicted the central bank would hold the cash rate at 3.85% pending new economic data, which would have relieved some of the mortgage stress. Yet the RBA moved anyway, reiterating that inflation must come down no matter what. 

“High inflation is corrosive and damages our economy,” said Lowe. “It erodes the value of money and savings, puts pressure on household budgets, makes it harder for businesses to plan and distorts investment. It makes us all poorer and hurts people on low incomes the most.”

However, Lowe acknowledged in his speech that the path to achieving lower inflation is a “narrow” one. Mistime a rate hike, and employment and house prices may sink. Get it wrong entirely, and the RBA may plunge the economy into a recession. 

But will property prices need to crash to stop inflation and halt rate hikes?

Was the April RBA rate hold a mistake? Inflation remains Lowe’s white whale

Collage of worried-looking Philip Lowe giving a speech

While Lowe’s speech unpacked lots of data and explained the RBA board’s decision-making process, his main point emphasised the need to combat inflation no matter what – including people’s expectations that inflation will stick. 

“If inflation stays high for too long, it will become ingrained in people’s expectations and high inflation will then be self-perpetuating,” explained Lowe. 

“As the historical experiences shows, the inevitable result of this would be even higher interest rates and, at some point, a larger increase in unemployment to get rid of the ingrained inflation. The Board’s priority is to do what it can to avoid this.”

In April, the RBA held the cash rate steady for the first time since it began raising rates in May 2022. This dovish pivot allowed the central bank to get a clearer picture of tight monetary policy affects the economy. 

However, the April hold may have sent the wrong signal to markets, which readily rebounded with spikes in consumer spending and property prices. Pundits celebrated and declared the rate cycle had peaked, but since April, the RBA has made two more 0.25% hikes – both of which caught markets entirely off guard. Could the April rate hold have set the wrong tone?

The RBA acknowledges that the worst inflation has passed. According to the Australian Bureau of Statistics , prices have dipped, spending has slowed, and GDP growth has damped. Employment remains high, but productivity stagnated since the pandemic, which mystified the governor somewhat. (Heard of pandemic fatigue , Lowe?)

In no uncertain terms, however, Lowe reminded us that inflation is the target. If employment and house prices suffer because of tight monetary policy, in the RBA’s view, it’s a “necessary” sacrifice.

“[The] desire to preserve the gains in the labour market does not mean that the Board will tolerate higher inflation persisting. There is a limit to how long inflation can stay above the target band,” explained Lowe.

For suffering households, however, this is not good news. Vulnerable Australians will be hit hardest, despite evidence from the OECD suggesting corporate profiteering made inflation worse – not ordinary households.

“I acknowledge that [changing the cash rate] comes with complications,” said Lowe. “Its effects are felt unevenly across the community [...] But this unevenness is not a reason to avoid using the tool that we have.”

“If we had not tightened monetary policy, the cost of living would be higher for longer [...] So, as difficult as it is, the rise in interest rates is necessary to bring inflation back to target in a reasonable timeframe.”

Refinance options running out for home loan hostages, so preparation is key

Collage of a kid falling flat on their face on a rate hike graph line

Refinancing remains a popular option for mortgage borrowers facing steep increases in their monthly repayments. However, it can be a complicated process requiring preparation since refinancers must qualify for the new home loan. 

This means credit checks, serviceability tests, and a detailed look at savings accounts – and rate hikes make ticking these boxes harder. Mortgagors unable to qualify may find themselves home loan hostages, which is a step before the worst-case scenario: mortgage prison. 

So if you aren’t sure whether you can absorb a few more rate hikes, act now, not later. Some strategies to boost your chances of successfully refinancing include: 

  • Reduce your spending now, and monitor your household budget (maybe through the help of an award-winning budgeting app).
  • Negotiate a lower interest rate with your lender: they’d rather play ball than lose your business entirely.
  • Pay off your debts so you don’t look like a home loan red flag.
  • Ask for free credit reports from credit bodies like Experian, Illion, or Equifax – you want to aim for a good credit score or higher to refinance. 
  • Make use of your offset account if you have one. Offset accounts can help reduce the interest you pay back on your home loan. 

Once you have your ducks in a row, compare refinance rates on home loans like in the table below.

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Last updated 30 October 2024 Important disclosures and comparison rate warning*

Refinance home loan comparisons on Mozo

Promoted

  • Fixed Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    5.93 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Fixed Express Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    6.11 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee. Aussie support centre. Fast approvals. Up to 6 free offset accounts (T&Cs apply).

  • Fixed Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    5.93 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Fixed Express Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    6.11 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee. Aussie support centre. Fast approvals. Up to 6 free offset accounts (T&Cs apply).

  • Fixed Rate Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    5.59 % p.a.
    Fixed 5 years
    Comparison rate
    6.27 % p.a.
    Initial monthly repayment
    $2,867

    Get repayment certainty with HSBC’s low 2 Year Fixed Rate Home Loan. Make up to $10,000 of extra repayments a year. The option to split your home loan between fixed and variable. Plus, score $3,288 cashback when you refinance an existing home loan of $250,000. Must apply by 28 February 2023 and settle by 30 April 2023.

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    5.74 % p.a.
    Fixed 3 years
    Comparison rate
    6.81 % p.a.
    Initial monthly repayment
    $2,915

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

  • Variable Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    5.98 % p.a.
    Variable
    Comparison rate
    6.02 % p.a.
    Initial monthly repayment
    $2,991
    Go to site

    Competitive variable rate on up to a 30 year loan term. No application fees to pay. Unlimited additional repayments. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discounted Home Value Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <60%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.99 % p.a.
    Initial monthly repayment
    $2,995

    Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Receive $3,288 cashback when you refinance an existing home loan. Minimum loan amount of $250,000, settle within 120 days from applying.

  • Express Home Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <90%
    Interest rate
    6.09 % p.a.
    Variable
    Comparison rate
    6.22 % p.a.
    Initial monthly repayment
    $3,027
    Go to site

    Get online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Elevate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.18 % p.a.
    Variable
    Comparison rate
    6.18 % p.a.
    Initial monthly repayment
    $3,056

    Get competitive rates on loan terms of 5 to 30 years with the Aussie Elevate Home Loan. Structure your loan with up to five splits. Make additional repayments (T&Cs apply). Offset accounts available. Unlimited redraw using your online banking account. Choose from weekly, fortnightly or monthly payments For loan amounts from $10,000 to $5 million.

image of houses

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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