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The country’s top four banks are now predicting that the Reserve Bank will raise the cash rate by 25 basis points at its upcoming meeting next Tuesday, with a similar increase expected in May.
At the last gathering on February 3, the RBA elevated the interest rate by 0.25 percent, bringing it to 3.85 percent.
If these predictions hold true, a three-fold increase would push the cash rate to 4.35 percent.
For those with a million-dollar mortgage, the cumulative effect of potential rate hikes in February, March, and May would mean shelling out an additional $453 each month.
The major banks attribute their forecasts of these successive rate hikes to persistent high inflation and the economic instability triggered by the ongoing conflict in Iran.
“With inflation above target and the labour market tight, the inflation risks are likely to be more central for the board than risks around activity,” ANZ’s economic team said.
“The increased inflation risks will exacerbate those concerns, creating more urgency to move quickly to contain inflation expectations.”
NAB and Westpac yesterday said the RBA’s decision would rely on developments in the war in the Middle East and its impact on oil prices and the wider market.
“Much will depend on the trajectory of oil prices and the domestic data flow, and we see two-sided risks around our new central case for a 4.35 per cent peak,” NAB said in a statement yesterday.
Westpac chief economist Luci Ellis said a swift resolution to the war, and subsequent fall in oil prices “would mean that the expected March hike would not be followed up in May”.
“Again, this is not our base case, but we will keep the possibility under review,” Ellis said.
Westpac said the effect of higher oil prices on inflation was “large but temporary” but believes the RBA will “nevertheless feel compelled to react”.
Canstar Data Insights Director Sally Tindall said war in the Middle East “has cast a huge cloud of uncertainty over the [rates] decision”.
“While the short-term impact of the conflict will push up prices, particularly fuel, the longer-term damage to the economy and jobs market is not yet clear,” she said.
“If the Westpac and NAB forecasts prove accurate, the RBA would deliver three back-to-back rate hikes across February, March and May – a scenario that would add further pressure to already stretched household budgets.”
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