Westpac now expects the Reserve Bank of Australia to hold off on a planned April rate hike as it worries about turmoil in financial markets.
Chief economist Bill Evans has updated the bank’s forecast for the RBA cash rate to peak at 3.85% in May, instead of the previously forecast 4.1%.
That would mean one more rate increase instead of two at the current 3.6 percent cash rate, the highest in 11 years, after the 10th consecutive increase in March.
“The main change since the March RBA Board meeting has been adverse developments in global markets,” said Mr Evans.
Credit Suisse shares plunged 24 percent on the Swiss stock market in trading on Wednesday after the Saudi National Bank refused to increase its 9.88 percent stake in the Swiss bank.
This raised fears of a financial crisis until the Swiss central bank agreed to lend him A$81 billion.
Westpac now expects the Reserve Bank of Australia to halt a planned rate hike in April as it worries about turmoil in financial markets. Chief economist Bill Evans has updated his forecast for the RBA cash rate to peak at 3.85% in May, instead of the previously forecast 4.1%.
What Australia’s banks are now forecasting
WESTPAC: Rate pause in April and a 0.25 percentage point increase in May, bringing the Reserve Bank cash rate to 3.85 percent
ANZ: Rate rises 0.25 percentage point in both April and May, bringing the cash rate to 4.1 percent
COMMUNITY STATE BANK: Rate hike of 0.25 percentage points in April, taking the exchange rate to 3.85%
NATIONAL BANK OF AUSTRALIA: Rate rises 0.25 percentage point in both April and May, bringing the cash rate to 4.1 percent
The latest upheaval occurred during a week that saw the collapse of two US lenders, Silicon Valley Bank and Signature Bank, reviving fears about a repeat of the credit crunch during the 2008 global financial crisis.
Evans said that central banks around the world would now be more concerned about financial market instability, even though inflation remains high.
“The wildly revolving markets are highlighting the uncertainty around this scenario,” he said.
Australia’s unemployment rate in February fell back to a 48-year low of 3.5 percent, with some economists worried about a wage-price spiral fueling already high inflation.
For that reason, ANZ still expects two 0.25 percentage point rate hikes in April and May that would take the cash rate to 4.1 percent.
“Given the strength of much of this week’s data stream, we continue to look for 25 basis points of adjustment at the April and May board meetings, giving a terminal cash rate of 4.1 percent,” its economists said.
Inflation is at a 32-year high of 7.8 percent, a level well above the RBA’s target of 2 to 3 percent.
Canstar calculated that the worsening cost of living had made it even more difficult for Australians to obtain a home loan with the banks necessary to assess a potential borrower’s ability to cope with a three percentage point increase in variable mortgage rates.
Shares of Credit Suisse plunged 24 percent on the Swiss Stock Exchange in trading on Wednesday after the Saudi National Bank refused to increase its 9.88 percent stake in the Swiss bank. This raised fears of a financial crisis until the Swiss central bank agreed to lend him A$81 billion.
Someone making an average full-time salary of $94,000 could now only borrow $380,000 to buy a $475,000 home with a 20 percent down payment.
That would be insufficient to buy a median-priced home in any market in the capital with the most affordable big city, Perth, at a median of $587,274.
A worker looking for a home, able to work from home or rent it out, would have more options in a regional market like Taree, on the central north coast of New South Wales, where $456,243 is the midpoint.
Those wishing to live in a capital city would have more options for apartments, where $436,567 is the average unit price in Adelaide.
As recently as early May, when the RBA cash rate was 0.1 per cent, an Australian with the same salary could borrow $509,000 to buy a $636,250 house.
Canstar lead commentator Steve Mickenbecker said the cost-of-living crisis was making it much harder for Australians to borrow, leading to a drastic reduction in what banks can lend (pictured, a block of flats in Waitara, on Sydney’s north shore).
Canstar chief commentator Steve Mickenbecker said the cost-of-living crisis was making it much harder for Australians to borrow, leading to a drastic reduction in what banks can lend.
“Interest rate increases have drastically reduced the borrowing capacity of homebuyers,” he told Daily Mail Australia.
Westpac expects the RBA to cut rates seven times in 2024 and 2025 to 2.35 percent.
Mickenbecker said it would take a recession for that to happen.
“That’s certainly not something to wish for,” he said.
“It will only restore purchasing power if it is accompanied by further declines in property prices.”
If rates fell to that level, Canstar estimates that someone with a $94,000 salary could borrow $427,000 to buy a $533,750 home.