'It's certainly a plausible scenario': RBA boss leaves 2022 rate hike in play

The Governor of the Reserve Bank of Australia Philip Lowe has refused to pinpoint when interest rates will rise, but has noted it's "a plausible scenario" that the cash rate could be increased in 2022.

Addressing the National Press Club today, Mr Lowe said the RBA Board was "prepared to be patient" before raising rates, but there were scenarios that could see interest rates rising in 2022.

Despite leaving the door open to a potential rate hike in 2022, Mr Lowe was careful to say that economic data would lead the RBA's decision and the nation's economic recovery from COVID-19 had only begun.

EXPLAINED: What the RBA's interest rate decision actually means

"I can say that the faster rate to full employment and inflation consistent with the target does bring forward the timing of a likely increase in interest rates. We should welcome that," Mr Lowe said.

"Whether it happens this year or not remains to be determined."

The RBA Governor said the timing of an increase to interest rates would depend on the speed of the Australian economy resolving supply issues and labour costs.

"If things go well, and the economy performs strongly, then there is clearly scenarios where we would be increasing rates later this year if some of the uncertainties are resolved in the way that I hope that they would," Mr Lowe said.

"But time will tell."

READ MORE: How interest rate hikes will slash your borrowing power

Many market economists have predicted that the RBA could raise interest rates from as early as August this year, with some even predicting multiple rate hikes in 2022.

When asked if homeowners should fix their home loan rates, Mr Lowe said it was inevitable when interest rates will go up.

"The advice that I would give to people is - make sure that you have buffers. Interest rates will go up. And the stronger the economy, the better progress on unemployment the faster and the sooner the increase in interest rates will be," Mr Lowe said.

"So interest rates will go up. We need to be prepared for that. And people need to have buffers.

"One of the things that I think will happen is that interest rates will go up. I can't tell you when, but they will go up."

READ MORE: Grim forecast for Aussie homeowners

Currently, Australia's cash rate target is 0.10 per cent, the lowest interest rate on record.

If interest rates were to be hiked multiple times in 2022, the maximum borrowing capacity of Australians would be slashed by tens of thousands of dollars.

Based on a single person taking out a 30-year loan, a person earning $100,000 a year would see their maximum borrowing capacity fall by $31,900 to around $719,100.

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