Judo Bank now predicts the Reserve Bank will raise interest rates three times in 2024 to levels not seen in 16 years, adding $300 a month to average mortgage payments.
The bank’s chief economic adviser, Warren Hogan, predicts the cash rate will rise to 5.1 per cent by Christmas, up from an existing 12-year high of 4.35 per cent.
This would take the Reserve Bank of Australia’s cash rate to a level last seen in December 2008 during the global financial crisis.
A borrower with an average mortgage of $600,000 would see their monthly payments increase by another $300, following the most aggressive rate increases in a generation.
The Judo Bank now predicts the Reserve Bank will raise interest rates three times in 2024 (pictured: Reserve Bank of Australia Governor Michele Bullock).
Until Wednesday, the likes of the Commonwealth Bank were forecasting three rate cuts in 2024, but higher-than-expected inflation data released on Wednesday has caused economists to reassess their forecasts.
While annual headline inflation in the March quarter fell to 3.6 percent, an underlying measure of inflation showed prices still rising 4.4 percent.
This is well above the Reserve Bank’s 2 to 3 per cent target.
Hogan, a former ANZ chief economist, said inflation was higher than the Reserve Bank expected, even though most Australian borrowers had variable-rate mortgages.
“They expected us to be able to do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages,” he said. The Australian Financial Review.
“We just need to get to the level (cash rate) that other countries have, which is 5 percent.”
Even with three rate hikes, an Australian cash rate of 5.1 percent would still be lower than New Zealand’s 5.5 percent and Canada’s 5 percent.
Australian borrowers have already endured 13 rate increases in 18 months, between May 2022 and November 2023, and they were already the most aggressive increases since 1989.
Hogan is one of the few economists still predicting further rate rises and was the only one polled by The AFR to predict the RBA cash rate would reach 4.35 per cent.
In November, a month before the Commonwealth Bank updated its forecasts to predict six rate cuts in 2024 and 2025, former Reserve Bank board member Warwick McKibbin predicted three more rate rises.