three of the big four banks have revised their forecasts for further interest rate hikes after a weaker-than-expected rise on Tuesday.
The The Reserve Bank of Australia raised its key rate by 25 basis points on Tuesday. at 2.6 percent.
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Only the Commonwealth Bank predicted this increase, the other three expecting an increase of 50 basis points.
In the wake of the less severe rise, banks are adjusting their projections for the future.
ANZ now expects the cash rate to peak at 3.6% next May, from 3.35% at the end of this year.
He said the RBA’s decision to reduce the pace of hikes increases the likelihood that more hikes will be needed over a longer period.
Westpac still believes the spot rate will peak at 3.6%, but has pushed it back until next March.
NAB also maintained the same peak, forecasting a high of 3.1%, but pushed it back from November to February.
Commonwealth Bank’s outlook was unchanged, expecting a 2.85% spike next month.
All four forecast another 0.25% rise in November.
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If the banks’ projections come true, Australian borrowers would be paying hundreds of dollars more a month in repayments before the increases begin in May this year.
The cash rate had been reduced to a record low of 0.1% due to financial pressures from the pandemic before six consecutive increases, starting in May.
RateCity’s analysis found that the average borrower with a $500,000 loan would pay between $760 and $982 more per month than at the start of 2022 according to Big Four forecasts.
For a borrower with a loan of $1 million, that would be between $1,520 and $1,964, depending on the big four prediction used.
RateCity research director Sally Tindall said it was possible more rate hikes were to come.
“Make sure you’re prepared for these hikes by checking what your monthly repayments will be if your rate goes up another 1% after this hike,” she said.
“If you can, put your budget to the test by making those higher repayments now to see how it holds up.
“If the numbers don’t match, start making changes today. Open your banking app and see where your money is going.
“Start by targeting the big spend, because that’s often where the biggest savings can be made.
“That doesn’t necessarily mean giving up your much-loved takeaway coffee – renegotiating your most expensive bills will likely save you a lot more money each month.”
RBA Governor Philip Lowe, explaining Tuesday’s rise, said uncertainty in the global economy was the main driver behind the increase.
“One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia is responding to tighter financial conditions,” he said.
“Rising inflation and higher interest rates are putting pressure on household budgets, and the full effects of rising interest rates are yet to be felt on mortgage payments.
“Consumer confidence has also fallen and house prices are down after previous strong increases. By working the other way, people find jobs, earn more hours of work, and receive higher wages.
“Many households have also built up significant financial cushions and the savings rate still remains higher than it was before the pandemic.”
He hinted that further hikes were likely as inflation continued to climb.
“Today’s further interest rate hike will help achieve a more sustainable balance of supply and demand in the Australian economy. This is necessary to bring inflation down.
“The board expects to raise interest rates further in the period ahead. It is closely monitoring the global economy, household spending and wage and price setting behavior.
“The size and timing of future interest rate increases will continue to be determined by incoming data and the board’s assessment of the outlook for inflation and the labor market.”
Treasurer Jim Chalmers said the interest rate hikes would be factored into his first budget, which is due in three weeks.
“Just because it’s a little less than a lot of people were anticipating, and just because it’s consistent with what we’re seeing around the world, doesn’t mean it’s going to be much easier for Australians to find room in their family budget to meet the rising cost of servicing the mortgage,” he said.
He said “storm clouds were gathering” in the global economy.
“The three most important contextual elements for the budget that we are finalizing, first of all, rising inflation, rising interest rates and falling wages.
“Second, the deteriorating global outlook. Storm clouds are gathering again in the global economy and that is not without significance for us as we prepare our budget at home.
“Thirdly, continued structural pressures on the Australian budget in areas such as health, NDIS, defense and the rising cost of Commonwealth debt, but as interest rates also rise.”
Chalmers said the budget will be about “tough decisions in tough times.”
Mortgage holders face a financial headache as the RBA announces the first interest rate hike since 2010.
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