Margaret Lomas

in general inflation and the fact that the cost of living would go up.

In hindsight, I still feel that the only mistake that the Reserve Bank has really made is to almost promise that rates would stay low.

So they're being asked to resign on the back of what's probably considered to be a critical mistake by many people.

But in reality, whenever we have inflationary pressures, the only way that the Reserve Bank can deal with that is through monetary policy.

And that policy generally dictates that rates need to rise in order to curb spending.

We are anxious and eager to experience the good times and therefore we're spending more.

And when we spend more, that's when the inflationary pressures come in.

So what the Reserve Bank is trying to do is they're trying to stop us from spending and curb that discretionary spending on those new TVs and the new things that you get around your house that you don't necessarily need.

And the only tool they have to do that

is interest rate rises.

It's very difficult for people who are really on that borderline where they just qualified for a loan, housing prices ran away and they're paying so much for a house.

But I think we do have to understand as well that there's a flip side to every story.

And in this one, it is the danger of runaway inflation, which will be far worse than interest rate rises.

I think you're right, and it probably will be a 50 basis points increase if the economy hasn't slowed, and it's really not slowing yet.

I don't want to be one of those flippant people who says, oh, but we had much higher rates, and people need to be used to that, and 7% is more normal, because that doesn't help anyone who's currently in a situation where they now have to find extra money to be able to support that mortgage.

But I think it could be a good lesson for people,

in understanding that when they do go for a loan, there are two important things that I think people need to know when they are looking to buy a house.

The first one is that you shouldn't ever buy in an overheated market.

Because when it's an overheated market, you're likely to be buying either on the way up or when the market is just about to turn.

Because make no mistakes, markets always turn.