The Reserve Bank of Australia is unapologetic over the recent interest rate rises and stresses the tactics necessary to protect Australia’s economy.
RBA assistant governor Philip Lowe says the current round of rate rises should not hurt too many homeowners.
He believes many homeowners would have been expected some rate rise soon and would have factored this into their budgets.
''I think most borrowers understood that the setting of monetary policy we had over the last year was unusual,'' Mr Lowe told a conference in Sydney yesterday.
Speaking at the Citigroup Australian Investment Conference, Mr Lowe answered questions and also said he predicts the exchange rate to be higher in future.
Dr Lowe defended the policy to raise official rates by 25 basis points two weeks ago, saying the rates were at historically low levels and it was appropriate to now return to ''normal'' fiscal policy.
The cash rate now sits at 3.25% with most lenders choosing to pass on the full 25 basis point increase to home owners.
Dr Lowe stresses the rates were slashed late in 2008 and early 2009 due to strong suggestion from well respected people that the world economy was in serious trouble. The low rate of 3% was an ‘emergency setting.’
He said that while there were still risks, the uncertainty was fading away and a normal monetary policy had to be adopted.
Economists are now predicting a further rate rise in November of up to 50 basis points. This would bring the cash rate up to 3.75% and no doubt mortgage rates would also increase.
The RBA is due to meet again on November 3.
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