Interest rates are facing a bigger and steeper rise as the inflationary boom increases price pressures, according to new rate forecasts.
Westpac’s latest outlook for monetary policy signaled a faster and faster jump in the cash rate, with economists at the nation’s second-biggest bank touting a rise as early as June.
The bank’s chief economist, Bill Evans, in his update released on Thursday, signaled that the Reserve Bank of Australia would raise interest rates to 1.25% by the end of the year and inflate still its parameters at 2% by June 2023.
“We expect a much shorter tightening cycle with back-to-back rate hikes in June, July and August,” Evans said in his update.
“This point would see the 2020 emergency COVID cuts reversed, with the board likely to take a break in September.
“Further increases are now expected in October and November to reach 1.25% by the end of the year.”
A faster and more pronounced rise in rates will have consequences on the cost of existing borrowings which will translate into an increase in interest payable over the coming months.
The market speculated on a move sooner rather than later as inflationary pressures surged past the RBA’s target range of 2-3%.
Calculations by RateCity show that a $750,000 mortgage would see monthly repayments jump 22% to the top of Westpac’s forecast, or an additional $763.
At the end of that year, that payment increases by 13% or $456 per month on the same loan.
Mr Evans said the RBA would likely be in political hot water over the influence the budget had in accelerating its decision to change rates.
“By setting a clear expectation that the Board will now begin the tightening cycle in June, the RBA is prepared to risk political controversy, particularly around any potential discussion of the role of the federal budget in changing the Board’s stance.” , did he declare.
Inflation had risen before the oil shock triggered by the Ukraine crisis, partly due to material constraints leading to supply shortages in a number of industries and sectors.
This was particularly felt in the construction sector, where low housing stock and the inability to build faster due to a lack of supplies and labor drove prices up. .
Labor Finance spokeswoman Katy Gallagher said rising rates would put pressure on households, saying more needed to be done to raise wages for low-income people.
“The fact that wages have stagnated is one of the reasons people find these cost of living pressures almost unmanageable,” she said.
The latest data from the Australian Bureau of Statistics shows housing approvals in February jumped 43.5% from the previous month.
New residential housing approvals were mostly seen in New South Wales, Victoria and Western Australia.
Westpac also updated its unemployment rate forecast, expecting it to fall to 3.25%. Salaries are expected to increase by 4% in 2023.