Big four banks predict three consecutive RBA rate hikes
Mortgage holders are being warned that interest rates could rise to a 15-year high by the end of the year as rising oil prices have led all four major banks to predict a rate hike is imminent.
ANZ Bank on Thursday became the latest major lender to change its forecast for the Reserve Bank’s March meeting after CBA, Westpac and NAB revised their calls on Wednesday.
ANZ economists Adam Boyton and Adelaide Timbrell said in a research note that the Australian economy was already too hot for the RBA’s liking and the conflict in the Middle East was likely to push inflation even higher.
“Rising inflation risks will further fuel inflation concerns and increase the urgency to act quickly to contain inflation expectations,” they said.
“Inflation expectations in ANZ-Roy Morgan Australian Consumer Confidence data are at their highest level since November 2022.”
The big four banks expect the RBA to increase the cash rate by another 25 basis points to 4.35 percent in May; If their predictions for next week are confirmed, this will mean three consecutive increases.
Each 25 basis point increase adds about $90 in monthly repayments to a typical $600,000 homeowner’s mortgage.
Once the cash rate reaches 4.35 per cent, ANZ expects the RBA to take a long pause to assess the impact of higher rates on the economy.
“At this stage the effects of the activity on the economy will become more significant,” Mr. Boyton and Ms. Timbrell said.
“There are already signs that consumer spending impulses are slowing this year, and given the decline in consumer confidence in recent weeks this could fall further.”
Household spending fell for the first time since September 2024, according to the Commonwealth Bank’s Household Expenditure Insights index for February, suggesting this month’s interest rate rise could already be hurting consumers.
CBA Australia chief economic officer Belinda Allen said it was too early to tell whether this was a coincidence or the beginning of a slowing trend in household consumption growth.
“More moderate consumption growth will be needed to help bring the economy back to balance and inflation back to target,” he said.
“Rising energy prices will increase inflation this year, constraining household incomes and adding downside risk to the outlook.”
Rising interest rates will also cause consumption to slow down; money markets will almost complete pricing in three more rate hikes by the end of 2026 to leave the cash rate at 4.6 percent, the highest level since October 2011.
“Increasing turmoil from conflict in the Middle East and rising energy prices are set to tighten its grip on Australian households at a time when inflation remains sticky, adding to cost-of-living pressures,” IG market analyst Tony Sycamore said.
“Following a jump in consumer inflation expectations this week – now at multi-year highs amid hawkish comments from RBA deputy governor Andrew Hauser – Australian interest rates markets continue to aggressively reprice for further tightening.”
This sent the Australian dollar to new highs against its US counterpart, but it fell back to $71.25c on Thursday afternoon as higher energy prices and safe-haven demand supported the greenback.
But NAB FX head of research Ray Attrill said the longer the war drags on and energy supplies are disrupted by the closure of the Strait of Hormuz, the worse the prospects for the Australian dollar will be.
Because Australia is a net energy exporter, it appears to be in a better position than other countries to cope with rising oil and gas prices.
But he said the Australian dollar was also a risk-sensitive currency and vulnerable to sell-offs in global equity markets.
In an extreme risk aversion scenario, Mr Attrill predicts the Aussie could fall as low as 65c against the US dollar, but his base case is that it will remain in the low 70s through 2026.
Australia’s Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.
