Westpac and the National Australia Bank are predicting the Reserve Bank is preparing to strike twice, with economists now expecting rate hikes in both March and May.
It marks a sharp shift from earlier expectations of a single move in May, with the bank now tipping the cash rate to peak at 4.35 per cent.
If the RBA lifts the cash rate to 4.35 per cent, a borrower with a $600,000 mortgage and 25 years remaining could see repayments rise by about $180 a month – or roughly $2,160 a year if lenders pass on both hikes in full.
The extra costs would come on top of the rate rise already handed down in February, bringing the total increase in repayments to about $270 a month compared to last year.
While the RBA cash rate could peak at 4.35 per cent, borrowers typically pay much higher interest rates because banks add their own margin on top of the official rate.
‘For example, if you’re now sitting on a rate of 5.75 per cent, test it out at 6.25 per cent – even 6.5 per cent – to see if it stacks up against your budget,’ Canstar.com.au data insights director Sally Tindall said.
The revised outlook reflects the RBA’s growing unease over a jump in headline inflation, driven largely by rising oil prices.
Crude oil surged to almost $US120 a barrel earlier in the week as the escalating conflict in the Middle East threatened prolonged disruption to the Strait of Hormuz, a key corridor for around 20 per cent of the world’s energy supply.
Westpac Group chief economist Luci Ellis (pictured) is now forecasting the RBA will hike interest rates in March and May
Economists are forecasting RBA boss Michele Bullock (pictured) may lift rates in both March and May
Ms Tindall said Australia’s robust economy and jobs market, coupled with core inflation that is moving in the wrong direction, and likely to continue to do so, paint a strong case for a March hike.
‘However, the split among the big four forecasts highlights just how uncertain the outlook currently is. The RBA is walking a tightrope between tackling persistent inflation and avoiding pushing too hard,’ she said.
‘A cash rate hike next week is not a done deal. The war in the Middle East has cast a huge cloud of uncertainty over the decision, because while the short-term impact of the conflict will push up prices, particularly fuel, the longer-term damage to the economy and jobs market is not yet clear.
‘Even consumer confidence is difficult to interpret at this stage, as the unease among households increases as the days go by. With impact already being felt in areas like petrol, many people are becoming increasingly nervous.
‘If the Westpac and NAB forecasts prove accurate, the RBA would deliver three back-to-back rate hikes across February, March and May – a scenario that would add further pressure to already stretched household budgets.
‘A family with a $600,000 mortgage isn’t just looking at a few extra dollars each month. If the RBA ends up rolling out three successive hikes through to May, they’re looking at an extra $272 just as winter sets in.’
RBA Deputy Governor Andrew Hauser warned that the spike in oil prices would push inflation higher, adding that he expected a debate among the board about whether or not to raise rates next week.
‘The effect of higher oil prices on headline inflation is large but temporary,’ said Luci Ellis, chief economist at Westpac.
‘The RBA Monetary Policy Board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe.’
The RBA was forced to raise rates to 3.85 per cent last month as inflation reaccelerated after three reductions last year. Headline inflation was at 3.8 per cent in January, with the trimmed mean measure edging up to 3.4 per cent, above the target band of 2 to 3 per cent.
The RBA will announce its next interest rate decision on March 17, with another board meeting scheduled for May.
