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Reserve Bank governor Philip Lowe says it is important in the long term to have "strong" banks that are turning a profit, even though it may be hard to hear for people in the grips of skyrocketing mortgage repayments.
Key points:
- Mr Lowe said the RBA was not sure when it would stop raising rates
- The cash rate is currently the highest it has been since 2012
- An inquiry will look at why banks take longer to pass rate rises on to savings accounts
Mr Lowe appeared before Senate estimates where he was repeatedly asked about the RBA's decision to continue to raise interest rates, despite the cash rate target currently sitting at the highest rate since September 2012.
In bad news for people with mortgages, he again confirmed more rate hikes were on the way.
"I don't think we're at the peak yet, but how far we have to go up I don't know," Mr Lowe said.
He said people needed to understand the risk of letting inflation, or the cost of living, continue to increase.
"I understand why some people focus on the risks on the one side, but we've got to be attentive to the risk from higher inflation," Mr Lowe said.
"It's corrosive for the economy. And all the evidence is if inflation stays high for too long, expectations adjust and that leads to higher interest rates and more unemployment.
"The risks are two sided, and we're trying to navigate our way through a narrow path."
He was asked what he would say to renters and mortgage holders who were dealing with increasing rates while the major banks recorded bumper profits.
"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," he replied.
"The banks are profitable, it's true. We want resilient banks.
"I know it's hard for people to accept when they're suffering … but the country is better off having strong, resilient banks that can provide the financial services that we need."
He said inflation, which is currently sitting at 7.8 per cent, was still "way too high" and unemployment would need to rise before there were any major changes.
Mr Lowe also said he found it "a bit unfair" that criticism of the interest rate hikes was directed at him, noting "there are nine of us" on the RBA board who make the decision.
But he went on to say he was not complaining that he and his colleagues were tasked with making "unpopular" decisions.
Inquiry into rate rises on savings
Mr Lowe also noted that while banks were quick to pass on rate rises to mortgage customers, they were not as fast at passing it on to savings or deposit accounts.
That banks' delay will be the subject of an inquiry by the Australian Competition and Consumer Commission.
Treasurer Jim Chalmers has asked the ACCC to "take a good look" at the issue, saying it should be the "silver lining" when rates do increase.
The ACCC has been asked to report back to Mr Chalmers by December 1.
Mr Lowe said he thought it was right that the government was concerned about the lag.
"When we put up interest rates, the immediate effect, I think, is a boost to bank profits, particularly if they're slow in raising deposit rates, which they have been," he said.