‘Central banker’s nightmare’: inflation is high and borrowers are struggling, but another rake hike is on the cards
Key takeaways
- The RBA believes inflation is still too high, and many businesses are assuming it's going to stay that way.
- This makes another rate rise in November more likely, adding further pressure to borrowers.
- What's next: Around 1 in 3 borrowers are currently at risk of mortgage stress.
Inflation appears to be above the RBA's forecast, which makes a November rate rise more likely.
Reserve Bank deputy governor Andrew Hauser told the Citi Investment Conference earlier this week that high inflation seems to be entrenched.
"The inflation outlook looks materially worse than we projected in the August report... on the Middle East, oil prices are even higher, about a third higher than we assumed in the August projection."
Last month's inflation figures were already a shock, coming in higher than predicted, mere days after a fourth RBA hike in 2026.
The deputy governor's comments suggest that not only is inflation still too high, but many businesses are starting to assume higher inflation levels are now the new normal — "the central banker's nightmare."
Another rate rise looking likely
The ABS won't release the next monthly inflation statistics until Wednesday. But at this point, another rate rise when the RBA meets on November 3 is looking more likely.
Assuming another 25-basis-point hike, the official cash rate would jump to 4.85%.
We haven't seen a rate this high in a very long time. The closest we got was in 2011, when the cash rate spent most of the year at 4.75% before dropping to 4.50%.
The last time the cash rate was any higher than that was prior to the 2008 global financial crisis, when the cash rate peaked at 7.25% at the start of the year and plunged to 3.0% by early 2009.
Can borrowers take the pain?
Each rate hike adds $113 a month to the average borrower's repayments, according to Finder's own analysis.
So a fifth hike this year would mean the average borrower is paying around $550 a month more on their home loan than they were in January.
Higher repayments, combined with the fact that everything else is getting more expensive, is pushing a lot of borrowers into mortgage stress.
Roy Morgan's mortgage stress research suggests that 32.3% of Australian borrowers are "at risk" of mortgage stress. That's up 8.4 percentage points since the start of the year.
Finder's own research puts the share of borrowers who say they're struggling to repay their mortgages at 35%.
But the RBA has its own modelling, and seems to think borrowers are well placed to handle more rate rises.
In its October Financial Stability Review, the RBA stated that households have "a high level of resilience overall, and loan arrears remain low, despite financial pressures picking up this year in response to higher inflation and interest rates."
Sources
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