Australia’s two largest banks are expecting another interest rate hike on Tuesday despite falling inflation.
The Commonwealth Bank and Westpac forecast a 0.25 percentage point rise on Aug. 1 that would take the cash rate to a new 11-year high of 4.35 percent.
With NAB also expecting a rise next week, that means three of Australia’s big four banks are forecasting more pain for borrowers.
If his predictions come true, this would be the Reserve Bank of Australia’s 13th rate hike since May 2022, adding to the most aggressive pace of monetary policy tightening since 1989.
A borrower with an average of $600,000 would see their monthly payments increase by another $99, or an annual rate of $18,744 in just 15 months.
The Commonwealth Bank and Westpac predictions come even though inflation in June fell to 6 percent, down from a 7 percent annual pace in the March quarter and a 32-year high of 7.8 percent. at the end of 2022.
Australia’s two largest banks are expecting another interest rate hike on Tuesday despite falling inflation (pictured is outgoing Reserve Bank of Australia Governor Philip Lowe in India)
The 30-day interbank futures market sees a rate hike next week as a 10 percent chance, a big change from a week ago, when a hike was seen as a 48 percent chance.
What do the big four banks expect on Tuesday?
COMMUNITY STATE BANK: Up to 0.25 percentage points
WESTPAC: UP 0.25 percentage points
ANZ: On hold
TAKE: Up to 0.25 percentage points
Traders on the Australian Stock Exchange now see rate hikes as a thing of the past.
But Commonwealth Bank senior economist Belinda Allen said the RBA would raise rates for the last time on Tuesday, with inflation still well above the two to three percent target.
“We expect the August rate increase to be the last rate increase in this cycle, with monetary policy easing to begin in the first half of 2024,” he said.
“We expect a 25 basis point rate increase on what will be another line ball call.”
Westpac chief economist Bill Evans said an 8.6 per cent increase in the minimum wage, which took effect on July 1, would see the RBA rise on Tuesday and then leave rates on hold.
“Previously, we were of the strong opinion that a follow-up increase would be necessary in September,” he said.
“We are now comfortable that maintaining the adjusting bias beyond August should suffice.”
ANZ is speaking a different view to Commonwealth Bank and Westpac, arguing that a 0.8 per cent drop in June retail sales would give the RBA a reason to pause, with department store trade falling. 5 percent in just one month.
Economists Adam Boyton and Madeleine Dunk said retail sales had been falling for three straight quarters, a result last seen during the 2008 global financial crisis and 1991 recession.
“Spending is slowing as household budgets are squeezed by rising mortgage payments and cost-of-living pressures,” they said.
National Australia Bank expects a rate hike in August, followed by another in September that would take the cash rate to a 12-year high of 4.6 percent.
Commonwealth Bank Senior Economist Belinda Allen said the RBA would raise rates one last time on Tuesday, with inflation still well above the two to three percent target (a Sydney bank branch pictured)
Westpac chief economist Bill Evans said an 8.6 percent increase in the minimum wage, which took effect on July 1, would see the RBA rise on Tuesday and then leave rates on hold (in the photo, a Melbourne bank branch)
Another 25 basis point rate increase on Tuesday means that a borrower with an average $600,000 mortgage would see their monthly payments increase by $99 to $3,868, from $3,769.
This would occur when the Commonwealth Bank’s variable rate for a borrower with a 20 percent mortgage deposit increases to 6.69 percent, up from 6.44 percent.
As recently as May 2022, a borrower with a $600,000 mortgage was paying $2,306 a month.
A rate increase on Tuesday means payments would have skyrocketed 67.7 percent in 13 months and borrowers would have paid $1,562 more than they did a little over a year ago.
Annual reimbursements would also be $18,744 higher than at the beginning of 2022.
Reserve Bank of Australia Governor Philip Lowe’s seven-year term ends on September 17.