Is Your Personal Finance at Risk? Expert Reveals Skyrocketing Interest Rate Predictions

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As interest rates become a concern for individuals with home loans in Australia, it’s crucial to understand the future outlook. 

The country’s four central banks have revealed their cash rate forecasts, speculating on the Reserve Bank of Australia’s (RBA) actions and the potential timeline for rate hikes to subside.

Cash Rates on the Rise: Pandemic Low Gives Way to Inflation Surge and Borrower Blues

Amid the economic challenges posed by the COVID-19 pandemic, the RBA has maintained historically low cash rates. 

However, in May 2022, due to mounting inflation, the rates were increased. Since then, there have been consecutive hikes, impacting variable rate home loan borrowers as lenders pass on the changes. 

As a result, average variable rate mortgages have experienced a significant increase compared to early 2022.

In the latest meeting in June 2023, the RBA board raised the cash rate by 25 basis points, setting it at the current level of 4.10%. This aligns with the customary monthly 25 basis point hikes that have become the norm.

Although RBA Governor Philip Lowe has hinted at potential future rate increases, the duration of this trend and the likelihood of another hike next month remain uncertain. Let’s delve into the available information.

What can Australians expect in terms of rising interest rates? Here are the predictions from Australia’s leading banks concerning the RBA cash rate movements in 2023:

ANZ: ANZ economists anticipate that the current cash rate of 4.10% may need to be revised to align inflation with the RBA’s expectations. Their latest forecast suggests a potential 25 basis point hike, bringing the cash rate to a peak of 4.35%. Based on ANZ’s predictions, rate cuts may only occur in November 2024.

CommBank: According to Commbank’s latest projection, the RBA will likely implement a more 25 basis point increase in July or August, reaching a cash rate peak of 4.35%. CommBank has also acknowledged the potential “risk” of cash rate hikes in July and August, which could rise 4.60%.

NAB: NAB Group Chief Economist Alan Oster acknowledges the challenge of predicting cash rates due to the mixed signals from the RBA in 2023. However, the bank’s current stance indicates a 25 basis point hike in July or August, potentially bringing the cash rate to its peak at 4.35%.

Westpac: Senior economist Matthew Hassan from Westpac suggests that RBA governor Philip Lowe’s recent statements indicate an additional 25 basis point hike in July, potentially resulting in a cash rate peak of 4.35%. Westpac anticipates there may be enough compelling evidence of inflation deceleration to prompt the RBA to maintain this level by August.

RBA’s Commitment to Restoring Inflation within the Target Range

During the RBA’s monthly board meeting in March 2023, the cash rate was raised by 25 basis points. Governor Philip Lowe emphasised the central bank’s primary objective of bringing inflation back within the target range.

“High inflation poses difficulties for individuals and hampers economic functioning,” stated Lowe. “If public expectations of high inflation become entrenched, rectifying the situation later would incur significant costs, including higher interest rates and increased unemployment. The Board aims to restore inflation to the 2–3 per cent target range while ensuring a stable economy, albeit navigating a narrow path toward a smooth transition.”

“The Board anticipates the need for further monetary policy tightening to ensure inflation returns to its target and that the current period of elevated inflation is transitory,” he added. “When determining the timing and extent of future interest rate increases, the Board will closely monitor global economic developments, household spending patterns, and the outlook for inflation and the labour market. The Board remains steadfast in its commitment to restore inflation to the target range and will take necessary actions.”

When Can We Expect The Subsequent Increase In The Cash Rate?

The RBA convenes on the first Tuesday of each month, excluding January. The upcoming meeting of the RBA board is scheduled for Tuesday, July 4, and it remains to be seen whether the board will continue the trend of monthly 25 basis point hikes that became commonplace in 2022.

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