RBA says rate rises do more than hurt mortgage holders

Summarised from 2 outlets · Updated 19 Oct, 06:31 · Archive

The Reserve Bank's assistant governor says interest rate increases work through four channels beyond just mortgage payments.

Reserve Bank assistant governor Christopher Kent told the Commonwealth Bank global markets conference that Australians misunderstand how monetary policy works, saying rate rises do more than just affect mortgage holders.

Mr Kent outlined four main channels through which rate rises operate: exchange rates, impacts on savings and investment, asset valuations and mortgage payments. He said the cash flow channel affecting mortgages was 'the very tangible one that everyone in Australia understands', but that it was important to explain all four mechanisms. The RBA has raised rates four times this year by a total of 100 basis points to fight inflation, taking the cash rate from 3.60 to 4.60 per cent.

Mr Kent argued that higher rates can benefit motorists by supporting the Australian dollar, which reduces the cost of petrol. 'Australians don't pay US dollars at the pump, they pay Australian dollars,' he said, explaining that a stronger currency lowers the price of fuel priced in US dollars. He also noted that the Australian labour market was slowing faster than expected, though he warned that monthly data was volatile.

How it is being reported

• RBA assistant governor Christopher Kent rejects claims rate hikes only hurt mortgage holdersThe Reserve Bank says higher rates do more than just punish mortgage holders, and the truth could change how you think about the cash rate.The West Australian · 19 Oct, 06:20
• RBA assistant governor Christopher Kent rejects claims rate hikes only hurt mortgage holdersThe Reserve Bank says higher rates do more than just punish mortgage holders, and the truth could change how you think about the cash rate.Perth Now · 19 Oct, 06:20

In this story: Christopher Kent · Reserve Bank of Australia · Commonwealth Bank · Australia

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