Economists and professional investors anticipate at least two additional interest rate hikes in Australia before the end of the year, a move that could significantly increase mortgage repayments for homeowners. The Reserve Bank of Australia (RBA) is expected to implement a fourth rate increase from the current 4.35% to 4.60% at its upcoming board meeting on September 28-29. Money markets currently assign a 76% probability to this September hike.
Following this, a fifth rate increase, potentially lifting the cash rate to 4.85%, is also considered likely in the near future. According to analysis by Canstar, a borrower with a $600,000 mortgage could see their monthly repayments rise by approximately $92 with the first predicted hike, and an additional $92 if the rate climbs to 4.85%. For those with larger loans, a $750,000 mortgage could face an increase of $230 per month, while a $1 million mortgage might see an additional $306 monthly payment after both anticipated hikes.
Luci Ellis, Chief Economist at Westpac, noted that market expectations for interest rates have shifted rapidly due to persistent inflation driven by consumer demand. "A rate hike in November is now fully priced in, with a significant chance it occurs in September, as well as some probability of a follow-up hike in the new year," Ellis stated.
Westpac's analysis suggests that rising petrol prices, which have exceeded $2 a liter following the end of federal fuel excise cuts, may be influencing the RBA's perception of economic strength. The latest Westpac-DataX Card Tracker report indicated a 1.5% increase in spending over the quarter, with fuel costs being a significant contributor. When fuel expenses are excluded, household card spending actually decreased by 0.3% in August.
These projections align with comments from RBA Deputy Governor Andrew Hauser, who emphasized the central bank's readiness to raise interest rates if necessary to curb inflation, which has remained above the target for an extended period. "We could raise interest rates sharply," Hauser told ABC's 7.30, adding, "We could do it tomorrow, we could do it next week. Inflation has been above target for a long period of time and at some point, we will have to say that is long enough."
