Homeowners once again in the firing line as RBA warns of the 'nightmare' scenario Australia is currently facing

By SARAH BROOKES - SENIOR REPORTER, AUSTRALIA Published: 06:46, 14 April 2026 | Updated: 06:51, 14 April 2026 Australia's central bank is staring down a 'nightmare scenario' as stubborn inflation collides with faltering economic growth. And the bad news? Homeowners are once again firmly in the firing line.  The grim warning was delivered by Reserve Bank deputy governor Andrew Hauser, fuelling fears of further interest rate pain amid a prolonged inflation battle. Speaking at a fireside chat hosted by the Money Marketeers of New York University, Mr Hauser said Australia was heading for a 'big income shock' sparked by the escalating war in the Middle East.  Mr Hauser made it clear the Reserve Bank would not hesitate to keep lifting rates until inflation is beaten into submission.  'It is a central banker's nightmare,' he said. 'Rates will have to go to a level where they bring inflation back to target. And if that means them going higher, it means them going higher.'  Headline inflation in Australia is currently 3.7 per cent and the RBA wants to keep inflation averaging between two and three per cent. Reserve Bank deputy governor Andrew Hauser (pictured) delivered the grim warning to struggling homeowners at an event in New York For struggling homeowners, the message was blunt: relief is not coming anytime soon (stock) Most economists expect the RBA to lift rates to 4.35 per cent when it meets in May, while Westpac expects rates to be hiked again in June and August.  Mr Hauser said inflation was already too high before the conflict erupted, and the RBA does not have 'high confidence' that interest rates are restrictive enough. For homeowners, the message was blunt: relief is not coming anytime soon.  'The stagflationary shock: inflation up, activity down. Judging the balance between those two is, I guess, how we earn our money,' Mr Hauser said. Stagflation is a situation where economic activity is stagnating while also grappling with high inflation in a damaging phenomenon that is often accompanied by rising unemployment, recession and a host of other problems. Mr Hauser's warning comes as consumer confidence has plummeted with Tuesday's Westpac–Melbourne Institute Consumer Sentiment Index showing the biggest monthly fall since the Covid-19 pandemic. The index fell heavily in April, declining 12.5 per cent to 80.1 from 91.6 in March driven by spiking fuel prices, higher mortgage repayments and rising grocery prices.  Head of macro forecasting Matthew Hassan said Australian consumers are being hit by yet another cost of living shock. There are grim predictions nearly one million people will be unemployed If the Strait of Hormuz remains closed over coming weeks (pictured, a queue outside a Centrelink office) 'At 80, the index is back near historical lows, albeit above the extremes seen at the onset of the pandemic and during the recessions of the early 1990s and 1980s,' he said.  'The spike in fuel prices following the US–Israel war on Iran and a further 25bp interest rate increase are again putting finances under intense pressure.  'Near-term expectations for the economy and family finances also deteriorated sharply, suggesting consumers see little prospect for improvement and are bracing for more difficulties.  'The wider inflation consequences of the global energy shock have yet to fully play out locally, but clearly add to concerns that the RBA will need to increase interest rates again.' Job loss fears have also jumped to a five-and-a-half year high.  Griffith Business School economist Graeme Hughes said the cost of living squeeze is only going to continue. Most economists expect the RBA, led by Michele Bullock (pictured) to lift rates to 4.35 per cent when it meets in May with further hikes tipped in 2026 How should struggling families cope as rising rates and living costs squeeze budgets even tighter? What's your view?'Mortgage costs have risen sharply,' he told News Corp. 'A household with a $600,000 mortgage is now paying around $700 a month more than they were paying in 2021, before the rate cycle began.  'That is money that used to go to groceries, insurance, and savings. 'The household saving ratio is back to where it was in 2019, which means the extra buffer families built up during Covid has been fully absorbed.  Deloitte Access Economics has warned Australia could plunge headfirst into a recession within months with unemployment poised to surge along with inflation.  If the Strait of Hormuz remains closed over coming weeks, new modelling forecasts Australia would fall into recession, inflation would hit 6.6 per cent by the end of the year, and more than 950,000 workers would be unemployed. No comments have so far been submitted. Why not be the first to send us your thoughts, or debate this issue live on our message boards. By posting your comment you agree to our house rules. Do you want to automatically post your MailOnline comments to your Facebook Timeline? Your comment will be posted to MailOnline as usual. Do you want to automatically post your MailOnline comments to your Facebook Timeline? 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