In a surprise move this week, Reserve Bank Governor Philip Lowe has apologised to Australians for giving ‘unclear’ guidance that led to thousands of borrowers taking out mortgages in the expectation that interest rates would stay low.
Throughout 2021, Dr Lowe consistently said that interest rates were not likely to rise until 2024.
Based on that guidance, hundreds of thousands of borrowers took out loans over the period that they might not have otherwise, had they known rates would not stay low for long. According to data released by the Australian Prudential Regulation Authority (APRA) around 280,000 Australians borrowed six or more times their income, some with deposits as low as 10%.
Since May 2022, the RBA has been steadily lifting the official cash rate from .10% to 2.85% in November, meaning that borrowers on variable interest rates are now paying up to 7% on their mortgages.
When questioned at the Senate Economics Committee hearing in Canberra on Monday, Dr Lowe said that the Bank’s policy response to inject massive stimulus into the economy was the ‘right thing to do’ at the time, but with the benefit of hindsight ‘we didn’t get the forecast right’.
“I’m sorry that people listened to what we’ve said and acted on that, and now find themselves in a position they don’t want to don’t want to be in”, he said.
“It was dire times, and we decided that we would do everything we could.”
He agreed that the Bank’s announcements should be more carefully worded in the future, while at the same time warning that the cash rate is likely to keep rising in the near future.
