One of the big four banks has raised its expectations for rising interest rates in Australia, which means bad news for many mortgage holders.
One of Australia’s big four banks has revised up its expectations for Australia’s interest rate over the next few months, suggesting higher mortgage repayments for already struggling households.
Westpac Chief Economist Bill Evans now expects the terminal interest rate to stand at 2.6%, up from his previous forecast of 2.37%.
It stems from a record rate of 0.1% – introduced to help the country cope with the pandemic – which has since been raised and stands at 0.85%.
Earlier this month, Reserve Bank of Australia (RBA) Governor Philip Lowe announced he expected the rate to come in at around 2.5%, with further moves expected in the coming months. coming months.
“The resilience of the economy and rising inflation means this extraordinary support is no longer needed,” Mr Lowe said.
“The Board expects to take further steps in the process of normalizing monetary conditions in Australia over the coming months.”
ANZ also expects significant rate hikes over the next few months, given Mr Lowe’s “hawkish rhetoric” backing a 50 basis point (bp) hike in July and a likely rise in the rate of interest. cash each month until November.
More than half of Australian mortgages are variable rate with many more expected to be when their fixed rate loans mature by the end of 2023.
“In fact, 90% of mortgage borrowers are directly exposed to movements in the RBA’s cash rate over the next year and a half,” Mr Evans said.
Westpac’s new stance on the local cash rate follows a revised forecast for a series of aggressive rate hikes in the US reaching 3.375%.
“This cycle for the remainder of 2022 will result in increases of 75 basis points in July, 50 basis points in September, 25 basis points in November and 25 basis points in December,” Evans said.
“This shift to higher global rates has also led us to raise our terminal rate for the RBA’s tightening cycle.”
He added that the more aggressive approach is expected to slow the US economy, with the risk of a mild recession in the second half of 2023 followed by an interest rate cut to 2.125% through 2024.