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Three out of four of Australia’s big banks now project the RBA will raise the cash rate in May.
Economists from Westpac, NAB and ANZ have all revised their forecasts, following on from last week’s figures indicating that inflation hit 5.1 per cent in March 2022 – the highest annual figure since the global financial crisis (GFC).
Westpac and NAB now predict a 0.15 percentage point hike in May and a 0.25 percentage point hike in June.
From a long view, NAB expects the cash rate to reach 2.5 per cent by August 2024, while Westpac puts it on a similar trajectory, projecting a 2 per cent rate by May 2023.
ANZ, meanwhile, predicts the rate to reach 2.25 per cent by May 2023 and peak above 3 per cent at some point thereafter.
The Commonwealth Bank has said only that many economists predict a rate rise in either May or June, but it holds the view the cash rate will reach 1.25 per cent by February 2023.
RateCity.com.au research director Sally Tindall agreed that “a series of rapid rate hikes are imminent”, but noted that just how high the cash rate will go remains a point of conjecture.
“On one hand you’ve got CBA predicting a neutral cash rate of 1.25 per cent, Westpac believes it’ll get to 2 per cent, while the markets are predicting it will get to 3.4 per cent by August next year,” she said.
But she noted that the central bank is still expected to be cautious in its moves.
“One thing likely to hold the RBA back is the fact that many Australians are up to their necks in housing debt,” she said, noting that borrowers were already starting to assess their options in the face of rising mortgage payments.
“Many people may now be wondering if it’s worth fixing their home loan, even though ultra-low fixed rates are long gone,” Ms Tindall commented.
She explained that if the cash rate reaches 2 per cent by May 2023, as predicted by Westpac, the average owner-occupier with a $500,000 balance today, and 25 years remaining, could see their repayments rise by $374 by the end of the year and $511 by May 2023.
“Think about what suits your finances and your lifestyle and put all of these variables into your equation,” Ms Tindall advised anyone considering changing their loan terms. “The last thing you want to do is panic fix without thinking through your options.”
Weighing in on how a cash rate hike will impact property prices, PRD’s chief economist Dr Diaswati Mardiasmo noted that historical data could shed some light on what’s to come.
The RBA increased the cash rate multiple times between October 2009 and November 2010 in response to rising inflation due to the fallout of the GFC.
“The cash rate went from 3.25 per cent to 4.75 per cent in the space of 12 months, amounting to an increase of 175 basis points in the space of just a little over 12 months,” Dr Mardiasmo noted.
But as she explained, the first cash rate cut in October 2009 did not immediately result in property prices cooling.
“In fact, property prices went up due to the potential of another cash rate increase in the following months. Buyers wanted to be able to purchase their property at the new October 2009 cash rate before there were more,” Dr Mardiasmo said.
“It took several cash rate hikes in succession over a period of roughly 12 months before we saw a cooling in price. This suggests there is a time-lag between a cash rate hike event and the translation into property prices.”
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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