Home owners could be slugged with another $650 rise in their monthly mortgage bills as a major lender warns interest rates will need to rise much faster than feared.

The Reserve Bank thinks most households can stomach the pain though, with deputy governor Michele Bullock on Tuesday saying the near-record-low jobless rate and high saving levels would protect them from the worst.

“As a whole, households are in a fairly good position,” Ms Bullock said.

“The sector as a whole has large liquidity buffers, most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent.”

The comments came as ANZ Bank published grim predictions that the RBA would hike the official cash rate by another 2 percentage points by November.

That would take it to 3.35 per cent a year earlier than initially forecast.

Should ANZ’s predictions come true, average monthly variable home loan repayments would rise by another $650 over the next four months and take the total increase since the RBA’s first rate hike in May to $1001.

It’s all in the name of getting soaring inflation back under control, but economists said the RBA must carefully balance the risk of a recession.

Faster rate hikes coming: ANZ

ANZ economists said on Tuesday that last week’s surprisingly strong job numbers suggested inflation could rise more than expected and force the RBA to hike rates faster than planned.

They now expect rates to rise by half a percentage point in August, September, October and November – taking the interest rate target to 3.35 per cent.

ANZ said rates would need to stay at this “restrictive” level for some time because inflation is already so high and could rise higher still.

But the bank’s economists warned that such rapid rate hikes risked worsening an already souring economic outlook.

The RBA set the stage for higher mortgage rates in the minutes of its July board meeting published on Tuesday.

The central bank said it still considers rates to be “very low” – a statement that ANZ said supported its view that the official cash rate would finish the year above 3 per cent.

Ms Bullock referenced a 3 percentage-point rate hike by mid-2023 in a scenario on Tuesday about whether borrowers could cope with far higher rates.

She said the assumption was “informed by recent market pricing”.

BIS Oxford senior economist Sean Langcake said ANZ’s forecasts are “eye watering” and would significantly increase the risk of a recession.

“I can’t help but think a rate hike profile like that might be counterproductive,” he told TND.

“The worst thing the RBA could do would be to get too fixated on inflation at the risk of harming the labour market.”

Households well poised: RBA

Despite fears about a potential recession, the RBA remains optimistic that most households can stomach further rate hikes without falling into financial stress.

Ms Bullock said on Tuesday that Australians have used the pandemic to squirrel away hundreds of billions of dollars into their savings accounts, with many also getting well ahead on their mortgage repayments.

These factors, combined with high levels of employment, should cushion the blow of higher mortgage bills, Ms Bullock said.

“Among households with variable-rate owner-occupier mortgage debt, around half have accumulated enough prepayments to service their current loan repayments for almost two years or longer,” she said.

However, the deputy governor did concede that some borrowers may face hardship, particularly those who bought a house recently and have not had time to build up any repayment buffers.

Ms Bullock said higher debt-to-income borrowing during the pandemic – fuelled by low interest rates and high house prices – has made some loans more risky, especially among first-home buyers.

“If the borrower were to experience a fall in income or an increase in expenses, they might find it more difficult to service the loan,” she said.

“And in an environment of increasing interest rates, there is a risk that households with high DTIs [debt-to-income ratios] will find it more difficult to service their debt.”