As the Reserve Bank of Australia (RBA) is due to meet today (2 August) for its monetary policy meeting, all eyes will be on how far the central bank will move the cash rate to rein back rising inflation, now at 6.1 per cent.
With the federal Treasurer announcing inflation is now expected to hit 7¾ by the end of the year, up from its 7 per cent prediction, the central bank is firmly on a mission to slow rising inflation, signalling the likelihood of another hike.
Minutes from the RBA's July monetary policy meeting revealed the support for a 50-bp rise in August seemed more likely, with members agreeing that “arguments for raising interest rates by 50 basis points were stronger” when compared to a 25-bp rise.
The justification given was high inflation, supply constraints and rising prices, although in the July minutes Philip Lowe indicated there were “signs that price pressures” in parts of the global economy had started to abate.
Consensus on a 50-bp hike
As the RBA moves swiftly to normalise the pandemic era monetary policy and curb rising prices, Westpac has revised its forecasts, now expecting the cash rate to hit 3.35 per cent by February 2023, up from its previous (2.6 per cent forecast).
ANZ echoed similar expectations of a 50-bp hike in August, followed by three more 50-bp hikes taking its forecast to 3.35 per cent by November.
At the time of writing, NAB’s cash rate forecast remained at 2.60 per cent by February 2023, while Commonwealth Bank had indicated the cash rate will reach 2.60 per cent by the end of the year.
Westpac economist Bill Evans said the standard practice of 25-bp increments appear to have been “discarded for the time being”.
“We do expect that the Board will resist the option to raise the cash rate by 75 basis points in August with 50 basis points remaining the preferred option,” Mr Evans said.
Pointing towards a slowdown in economic growth, Mr Evans said he is now anticipating a “series of rate cuts in 2024” to restore the cash rate.
Mortgage holders scan repayment calculator
As rates continue to rise from their record-low levels to a more normalised setting, more borrowers are seeking clarification on what impact the changing rates will have on their repayments.
New data from the Commonwealth Bank of Australia (CBA) has shown a recent spike in the number of Australians using its online home loan repayment calculator following each of the Reserve Bank’s cash rate decisions.
For example, following the May Reserve Bank board meeting, CBA data revealed the bank’s online tool increased by 106 per cent in comparison to the day prior, with June data following a similar pattern (up 96 per cent).
The data also found there was a 46 per cent spike in the number of customers utilising the home loan change repayment tool to “actively increase their home loan repayments” in the week following the meeting, compared to the week prior.
Commonwealth Bank’s executive general manager home buying, Dr Michael Baumann, said borrowers are “acutely aware” that any increases to the cash rate may result in higher home loan rates.
“To understand what impact these rising rates may have on their finances, they are utilising the different tools available to get a sense of how much their monthly mortgage repayments may increase,” he said.
Indeed, the federal Treasurer has noted that borrowers are already starting to feel the "pain" of rising rates on their back pocket.
In his inaugural ministerial statement on the economy last Thursday (28 July), Treasurer Dr Jim Chalmers commented: “There’s no point pretending these rate rises don’t hurt – they do and they will.
“Every extra dollar Australians have to find to service the mortgage is a dollar that can’t help meet the high costs of other essentials." Mr Chalmers said.
In addition, with productivity and growth in Australia slowing, Mr Chalmers noted the importance of “working to address problems on the supply side”.