The RBA board will hold a two-day monetary policy meeting on Monday and Tuesday, with the Big Four bank economic teams tipping a rate rise. (Source: AAP)
Aussie borrowers are being warned to brace for two back-to-back interest rate hikes from the Reserve Bank of Australia (RBA). The war in the Middle East is expected to push inflation higher, with the price of oil again hitting $US100 a barrel this week.
Commonwealth Bank, Westpac, NAB and ANZ are all forecasting a rate rise when the RBA board meets on Tuesday, followed by another increase in May. This would lift the cash rate back up to 4.35 per cent and reverse the three rate cuts borrowers were given last year.
Inflation was already running hot in Australia before the Iran war began, with headline inflation at 3.8 per cent in January and underlying inflation at 3.4 per cent – easily above the RBA’s 2 to 3 per cent target range.
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CBA head of Australian economics Belinda Allen said inflation would lift further away from target from here as energy and other linked goods prices rise, but the impact on growth remained uncertain.
“Inflation is already too high, the economy is already breaching its capacity limit and the labour market is tight,” she said.
“The domestic data flow since the February meeting has confirmed that higher interest rates are needed and we now add a March hike to our cash rate forecast.”
The forecasts follow hawkish comments from RBA deputy governor Andrew Hauser this week, where the policymaker issued a warning about the risk to inflation posed by surging oil prices and other fallout from the Middle East war.
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RBA deputy governor Andrew Hauser said he now expected inflation to rise above the RBA’s previous 4.2 per cent forecast by June. (Source: AAP)
ANZ was the last of the Big Four banks to change its forecasts. It pre-emptively announced hikes to its fixed home loan rates on Friday by up to 0.25 percentage points.
With inflation above target and the labour market tight, ANZ economists Adam Boyton and Adelaide Timbrell said the inflation risks were likely to be more central for the RBA board than risks around activity.
“The increased inflation risks will exacerbate those concerns, creating more urgency to move quickly to contain inflation expectations,” they wrote in a note.
Westpac chief economist Luci Ellis said the effect of higher oil prices on headline inflation was “large but temporary”, but nevertheless the board would “feel compelled to react”.
NAB chief economist Sally Auld said the upside pressure on inflation “tips the balance in favour” of an extra increase in March, while noting recent “hawkish commentary” by both RBA governor Michelle Bullock and Hauser.
“It is clear from their commentary that senior RBA officials are inclined to view the Iranian conflict as an inflationary shock,” she said.
If the RBA hikes on Tuesday, it will add another $91 a month to repayments on a typical $600,000 mortgage.
If it hikes again in May, the total increase would rise to $181, while across all three hikes, it would be a total increase to repayments of $272.
Canstar has calculated the impact on different loan amounts if the RBA hikes in March and again in May:
$600,000 loan: $91 increase from one hike, $182 increase from two hikes
$800,000 loan: $121 increase from one hike, $243 increase from two hikes
$1 million loan: $151 increase from one hike, $304 increase from two hikes
If you have a mortgage, Canstar data insights director Sally Tindall said it was time to start preparing for higher rates.
“Switch, haggle, do whatever it takes to get yourself on a lower starting rate in case the one rise we saw last month turns into a rate hike frenzy,” she said.
The RBA will hold its monetary policy meeting next week and deliver its interest rate decision at 2.30pm AEDT on Tuesday.
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