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Why Australian home borrowers are facing more interest rate rises by Christmas because of inflation

Australian homeowners are expected to face four more rate hikes by Christmas, with inflation expected to worsen this year.

Westpac also expects another rise in 2023 – the sixth rise in nine months as mortgage holders experience the worst shock since 1994.

A typical borrower with a $600,000 mortgage will face a $671 increase in their monthly repayments in February next year, compared to $1,118 for those with a $1 million mortgage.

The Reserve Bank of Australia raised the spot rate by half a percentage point on Tuesday, after rising a quarter of a percentage point in May.

This month’s 0.5 percentage point marked the largest monthly rise in spot interest rates since February 2000 and was also the first consecutive rise since May 2010.

Westpac chief economist Bill Evans predicts another strong 0.5 percentage point increase in July.

Australian home borrowers are expected to face four more rate hikes by Christmas, with inflation expected to worsen this year

Australian home borrowers are expected to face four more rate hikes by Christmas, with inflation expected to worsen this year

Westpac raises tariff hike forecasts

JULY: 0.5 percentage point up to 1.35 percent

AUGUST: 0.25 percentage point up to 1.6 percent

NOVEMBER: 0.25 percentage point up to 1.85 percent

DECEMBER: 0.25 percentage point up to 2.1 percent

FEBRUARY: 0.25 percentage point up to 2.35 percent

This would be followed by another 0.25 percentage point increase in August, after the Australian Bureau of Statistics released inflation data for the June quarter.

Mr. Evans adjusted his forecasts so that the RBA would also raise interest rates by a quarter of a percentage point in November, December and again in February 2023.

This would bring the cash rate to 2.35 percent early next year for the first time since 2015.

Westpac previously predicted that the spot rate would hit 2.25 percent in May 2023, but now expects more aggressive rate hikes.

ANZ also expects the cash rate to reach 2.35 percent, but by the middle of next year.

If Westpac and ANZ’s new forecasts come true, that would be an increase of 2.25 percentage points within a year – the fastest increase since August to December 1994, when spot interest rates rose 2.75 percentage points.

Recent time rates rose so much that inflation still doubled from 2 percent in September 1994 to 4.5 percent in June 1995.

In the year to March 2022, inflation rose 5.1 percent, its fastest pace in 21 years.

Allegra Spender, the independent member of Wentworth in eastern Sydney, wants more immigration to tackle inflation

Allegra Spender, the independent member of Wentworth in eastern Sydney, wants more immigration to tackle inflation

The era of record-low cash interest rates of 0.1 percent ended in May and rates are now at 0.85 percent — the highest since October 2019 before the pandemic.

Mr Evans said that by August, when the spot rate reached 1.6 percent, there would be dangers if we continued larger rate hikes of half a percentage point.

“After that, the cash rate would have reached 1.6 percent and that’s what I would call that kind of neutral territory,” he said.

“That’s where it gets a little bit more dangerous to have big rate hikes because you can push the economy too hard once you get over that neutral margin.”

But Mr Evans said the larger 0.5 percentage point rate hike for June was justified as a tight labor market and supply chain shocks fueled inflation.

He argued that inflation would remain high if consumers expected price pressures to continue, causing sellers to raise prices while workers demanded better wages.

“The Reserve Bank definitely has a role to play in tackling the domestic portion of inflation that they can handle with higher interest rates,” said Mr. Evans.

“They also need to curb inflation expectations. They need economic agents to believe that the Reserve Bank is at work, pursuing inflation.”

Allegra Spender, the independent MP for Wentworth in eastern Sydney, called for immigration to be ramped up to more arrivals than before Australia closed the border in March 2020.

The Reserve Bank of Australia on Tuesday hiked spot interest rates by half a percentage point, after rising a quarter of a percentage point in May

The Reserve Bank of Australia on Tuesday hiked spot interest rates by half a percentage point, after rising a quarter of a percentage point in May

When the interest on your bank loan goes up in June

COMMON BANK: 0.5 percentage point up from June 17

WESTPAC: 0.5 percentage point up from June 21

ANZ: 0.5 percentage point up from June 17

NAB: 0.5 percentage point up as of June 17

“For the next two years, I have proposed increasing the total migration to 220,000,” she told ABC Radio National on Thursday.

A net annual immigration intake of 220,000 would exceed the 2019-20 level of 194,000, including the early months of the pandemic.

Treasury, which promotes high immigration, forecasts a net annual inflow of 235,000 in 2024.

Ms Spender, who represents Australia’s wealthiest electorate, argued that more immigration was needed to tackle inflation.

“You just can’t do the job because you don’t have the skills,” she said.

Every company I talk to says, “We’ve had our borders effectively closed for the past two years, we’re desperately missing skilled migrants and we should have a temporary increase in skilled migration for the next two years.”

Wages rose 2.4 percent in the year to March, less than half the rate of inflation, despite unemployment hitting a 48-year low of 3.9 percent in April.

That suggests that problems in the global supply chain rather than wages are responsible for inflation, until there is more evidence that wages are rising across the economy.

Westpac chief economist Bill Evans predicts another strong 0.5 percentage point increase in July.

Westpac chief economist Bill Evans predicts another strong 0.5 percentage point increase in July.

What a 2.35 percent cash interest will mean for YOUR mortgage?

$500,000: $559 up from $1,987 to $2,546

$600,000: $671 up from $2,384 to $3,055

$700,000: $783 up from $2,781 to $3,564

$800,000: $895 up from $3,178 to $4,073

$900,000: $1,007 up from $3,575 to $4,582

$1,000,000: $1,118 up from $3,973 to $5,091

The increase in monthly repayments is based on a variable mortgage rate rising from 2.54 percent to 4.54 percent, in line with the Reserve Bank of Australia’s Westpac and ANZ forecasts for the cash interest rate to rise from 0.35 percent to 2.35 percent. Variable rates based on current levels before the last RBA increase takes effect

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