She said the RBA had to balance the risks of not doing enough to bring inflation under control with being able to reverse direction if the economy was struggling.

“It becomes a question of least regret at this point. There is a risk of over-tightening, but if the bank finds in February or so next year that interest rates are too high, it can then cut them,” she said.

“As we’ve seen, cutting interest rates can have a quick and large impact.”

Monthly repayments on an average $600,000 mortgage have soared by more than $1350 since May last year, while about 800,000 borrowers with fixed-rate loans – set when interest rates were at record lows – are expected to transition into much more expensive loans through 2023.

Despite higher interest rates, house values are rebounding, in part due to limited supply.

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CoreLogic’s measure of home values, released on Tuesday, showed a nationwide lift of 0.7 per cent in July, the fifth consecutive monthly increase. Since February, values have increased by 4.1 per cent after falling 9.1 per cent from their April 2022 highs.

House values in Sydney increased 1 per cent in July to be 5.1 per cent up over the past three months. Despite the lift, values are still 2.4 per cent down over the past year.

In Melbourne, values increased by 0.3 per cent last month to be 1.8 per cent stronger over the quarter. Over the past 12 months, Melbourne house values are 5 per cent lower.

CoreLogic research director Tim Lawless said the rate of improvement in values had slowed over the past two months, partly because more properties were coming onto the market.

He said people might be trying to get into the peak spring buying season, but cautioned others could be selling because of financial pressures.

“Another possibility is that we are seeing the first signs of motivated selling as the rapid rate-hiking cycle catches up with household balance sheets,” he said.

Further evidence of the pressure on households was revealed in monthly data from the Australian Prudential Regulation Authority that showed the first fall in household bank deposits since May 2021.

The total value of deposits held in the nation’s banks edged down by 0.6 per cent, or almost $8 billion in June.

The Reserve Bank has previously noted the sharp increase in household savings through the pandemic. Among the large four banks, savings have soared from $715 billion pre-COVID to $1 trillion.

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Separate data from the RBA on Monday showed private sector credit grew by a much lower than expected 0.2 per cent in June. Owner-occupier housing credit improved by 0.4 per cent, but it fell by 0.1 per cent for investor housing, the first decline since June 2020 when the property market was being affected by pandemic restrictions.

CreditorWatch chief economist Anneke Thompson said the RBA was likely to hold interest rates steady given the growing evidence the economy was slowing.

“While the unemployment rate is still lower than what the RBA would like, quarterly inflation and monthly retail trade data showed positive inroads are being made in the fight against inflation,” she said.

“While services inflation is still increasing, the main contributors to this – rents, insurance and utilities – are not at all responsive to increases in the cash rate, and it is unlikely continued inflation in these areas will convince the RBA to increase again.”

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