The big four banks continue to bring forward their cash rate rise predictions, with three of the majors now forecasting the official cash rate (OCR) will increase next week, with more hikes “imminent”.
Last month, the consensus among the major banks was for the Reserve Bank of Australia (RBA) to move on interest rates after the Federal Election, but with inflation now sitting at 5.1 per cent annually, a level not seen in 20 years, they say hikes need to happen faster.
Economists from Westpac, NAB and ANZ have all brought forward their forecasts with Westpac and NAB now expecting a 15 basis point hike on 3 May and a 25 basis point rise in June, while CBA is the only major that stills sees June as the rate rise starting point.
Westpac is the most hawkish on their interest rate predictions, expecting the RBA to take the OCR to 2 per cent by May 2023.
ANZ expects hikes to start in May, reaching 2.25 per cent over the next 12 months, with a peak above 3 per cent sometime after 2023. NAB sees the cash rate reaching 2.50 per cent by August 2024.
Financial markets have fully priced in a 15 basis point increase in the cash rate in May to 0.25 per cent, up from 0.1 per cent.
Ahead of the upcoming Federal Election, Treasurer Josh Frydenberg said the RBA should wait to raise rates until they get the latest data on wages.
“I can only point you to previous statements that they have made where they have said they want to see inflation sustainably within their (2 per cent to 3 per cent) band, and they also want to see significant wages growth before they start to move,” Mr Frydenberg said.
RateCity.com.au Research Director, Sally Tindall said a rate hike next week is now a live possibility on the back of Wednesday’s surging inflation numbers, with more hikes likely later this year.
“While a series of rapid rate hikes are imminent, just how high the cash rate will go remains a point of conjecture,” Ms Tindall said.
“On one hand you’ve got CBA predicting a neutral cash rate of 1.25 per cent, Westpac believes it’ll get to 2 per cent, while the markets are predicting it will get to 3.4 per cent by August next year.”
Ms Tindall said one of the factors holding back the RBA from aggressively tightening is the level of debt many Australians have taken on in recent years.
“One thing likely to hold the RBA back is the fact that many Australians are up to their necks in housing debt,” she said.
“An average borrower with a $500,000 loan could see their repayments rise by $104 by June and $374 by the end of this year, if Westpac’s forecast is realised.”