The head of the Reserve Bank says interest rates are in restrictive territory and the bank is getting closer to a pause.

But he said a “further tightening of monetary policy” was still likely to ensure high inflation is only temporary.

In a speech following Tuesday’s decision to impose a 10th rise in the official cash rate to counter high inflation, RBA governor Philip Lowe said the “more recent rate increases” had moved interest rates into restrictive territory, which is where monetary policy is high enough to slow growth in the economy.

The earlier increases, he said on Wednesday, were necessary to remove the “extraordinary policy support” handed out during the pandemic.

Dr Lowe told the Australian Financial Review‘s Business Summit in Sydney that the RBA board discussed the timing of keeping interest rates on hold when it met on Tuesday.

“We discussed the lags in monetary policy, the effects of the large cumulative increase in interest rates since May and the difficulties that higher interest rates are causing for many households,” he said.

“We also discussed that, with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy.”

He said the timing of a pause would depend on incoming data and the board’s assessment of the outlook.

Dr Lowe also recycled his phrasing about the potential for further monetary tightening from his statement on the interest rate decision on Tuesday.

Analysts this week have speculated the evolution from “further interest rate increases” at the February meeting to “further tightening of monetary policy” in March suggests the bank is softening its rhetoric in preparation for a pause.

Dr Lowe also commented on the complex economic environment it was working with, with many of the usual variables at record highs or record lows.

“The inflation rate is at a three-decade high. The unemployment rate is around a five-decade low. Australia’s terms of trade are close to their highest level ever,” he said.

“Given these uncertainties, the board is monitoring the data very carefully month to month.

“It has the flexibility to respond as needed.”

On Tuesday, the RBA raised the official cash rate by 25 basis points to 3.6 per cent, the highest level since 2012.

Dr Lowe said on Wednesday that move would push mortgage repayments as a share of households’ disposable income to a record high of nearly 10 per cent later in 2023.

“The combination of cost-of-living pressures, higher interest rates and the decline in housing values is weighing on consumption,” he said.

Ten consecutive rate rises have piled an extra $983 onto monthly repayments for a $500,000, 25-year home loan, according to RateCity figures – or nearly $11,800 in annual repayments.

Treasurer Jim Chalmers said the increase had put further pressure on families.

“Yesterday’s decision will really tighten the screws on household budgets, I think that’s very clear. A lot of people are doing it very tough and it will make life a bit harder,” Dr Chalmers told ABC Radio.

“When people are under extreme financial pressure, that has implications for their wellbeing more broadly.”

Dr Chalmers said there were encouraging signs inflation had peaked, but it remained to be seen whether it was the case.

“Inflation will moderate over the course of the next 12 to 18 months. We would like it to moderate quicker, as quickly as possible,” he said.

“Obviously I’m concerned about the position that Australians find themselves, particularly Australians with a mortgage.”

Dr Chalmers said cost-of-living relief would be a key focus of the May budget.

“We will look for areas where we can trim spending … more substantially. We found more than $20 billion in savings in October. We are looking to trim spending in May as well, that’s an important part of spending restraint, which is an important part of our three-part strategy to deal with this inflation in our economy,” he said.

“Our job is to provide cost of living relief where we can … do that responsibly and affordably and methodically, without adding to inflation. It’s also about repairing our broken supply chains … and thirdly it’s showing restraint in the budget.

“We are trying to be really responsible in the budget, only spending money, investing money, where we think there will be a decent economic dividend and we get genuine value for money.”

Deputy Liberal leader Sussan Ley urged the government to bring spending under control to lessen the impact of inflation.

“It’s simple economics; if the government doesn’t get fiscal policy right, that makes inflation go up, that makes inflation higher than they need to,” she told ABC Radio.

“The Reserve Bank is doing its job, the government is not … this means an extra $20,000 a year that a typical Australian family will now have to find on their mortgage, this is incredibly difficult for families right now.”

Dr Chalmers said there was a need to show restraint in the budget.

-with AAP