At the expiry of the interest-only period, required payments will increase by around 30–40 per cent (with an example shown in the bar on the right). (As shown in the graph, the interest rate applied to the loan is expected to be lower when it switches to P&I (by around 40 basis points) but this effect is more than offset by the principal repayments.)
Had we moved the funds rate lower at the first sign of economic slowing, we would have created distortions threatening an even greater economic adjustment at a later date. It was well into autumn before one could be more confident that the balance of desired investment and saving was being durably restored.