RBA reveals grim struggle for many borrowers

But she admitted the funds of low income households have been hit twice as hard than those with high incomes.

In her first prepared remarks as RBA governor, Ms Bullock has detailed the painful inflation squeeze faced most acutely by highly indebted household borrowers who have seen the cost of repayments surge as the central bank delivered its punishing round of rate rises.

“For [indebted] households, higher interest costs have reduced their cash flow by more than the rise in inflation has,” Ms Bullock said in a speech to a Commonwealth Bank conference on Tuesday evening.

But Ms Bullock said the effects of high borrowing costs and persistent price pressures were not being felt uniformly across the economy.

Renters have, on average, seen their funds increase as high inflation and rising rents were outstripped by a jump in incomes, she said.

Similarly, households that were not saddled with mortgage repayments had seen cash savings rise since June 2021.

5 per cent of borrowers unable to pay for “essential expenses”

One in 20 households with a variable rate mortgage had been left unable to cover their cost of “essential expenses”, Ms Bullock revealed, citing recent analysis from the central bank.

For households with loans amounting to four times their income, one in four are unable to cover their costs.

“These borrowers may be finding ways to make ends meet, but this can involve some difficult financial decisions,” Ms Bullock added.

Governor Bullock stated that these households were drawing on savings, working extra hours, or forgoing expenses that would be normally considered essential.

“At the extreme, it could involve negotiating a hardship program with their lender or selling their property,” she said.

Bullock issues rate hike warning

Amid fears that an escalation of conflict between Hamas and Israel could keep oil prices and consequently inflation higher for longer, Ms Bullock said the central bank would hike rates if inflation proved stubbornly persistent.

“The board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation,” she noted.

Fresh inflation data for the September quarter, to be released on Wednesday, will be closely watched by economists and investors. A result above market expectations of a 1.1 per cent increase adds to the cash for a further monetary tightening.

Markets now ascribe a 40 per cent chance that the RBA will raise rates when it meets for its November Melbourne Cup Day meeting.

However, Ms Bullock noted the RBA was mindful of the effects of its aggressive round of monetary tightening, which typically take 12 to 18 months to flow through the economy.

“The board is mindful that growth in demand and the rate of inflation have been moderating, and that there are long lags in the transmission of monetary policy,” she said.

Originally published as One in 20 borrowers cannot cover “essential expenses”, RBA’s Bullock reveals