With the RBA all but certain to raise the cash rate on Tuesday afternoon, some economists are predicting this could be a regular monthly event.
All eyes are now on the Reserve Bank of Australia, which is set to raise interest rates on Tuesday afternoon – and some economists are predicting there could be rate hikes every month until Christmas.
The RBA has not raised the interest rate since November 2010 and the current rate is at an all-time high of 0.1%.
Three of the big four banks – ANZ, NAB and Westpac – hiked interest rates to 0.25% in May, with Commonwealth Bank predicting the RBA will wait until after the federal election with a June 0.15 rate hike . Some experts have predicted that the interest rate could even reach 2.5% by the end of the year.
Talk to The Daily Telegraphsenior economist at Nomura Australia and rates strategist Andrew Ticehurst thinks the interest rate will be raised monthly until December, when it could reach 2% by Christmas.
“I also have a mortgage, so I’m going to feel it,” he said.
Although the RBA is believed to have preferred to hold rates until after the election, the spike in the cost of living and inflation in Australia has made an interest rate hike all but certain.
International factors such as supply chain disruptions from China’s lockdown and Russia’s invasion of Ukraine have also heightened fears of a prolonged rise in inflation.
But it was the latest inflation figures that made a rate hike seem like a certainty. The latest Consumer Price Index (CPI) released last week by the Australian Bureau of Statistics (ABS) revealed that the CPI rose 2.1% in the March quarter of 2022 and 5.1% per year. This is the largest quarterly and annual increase since the introduction of the goods and services tax (GST) in 2000.
AMP Capital’s chief economist, Shane Oliver, said the RBA would be “accused of political interference” if it were to hold the exchange rate.
Once that amount is increased, banks are likely to pass on the full amount of the rate hike, Oliver said.
“Whatever the RBA does, the bank’s standard variable amounts are likely to increase by the same amount,” he previously told news.com.au.
“I think in a few days most customers will get a letter from their bank about a rate hike.”
If banks were to pass on the rate hike and raise the average variable interest rate from 3.5 to 3.65, repayments of a $500,000 principal and interest loan with 25 years remaining would increase by $41. per month (at $2,544 per month), according to Mozo. online calculator.
This amount would increase by $68 per month if there was a 0.25% increase, $136 with a 0.5% increase and $567 if there was a 2% increase.