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In a shift that caught many by surprise, NAB, Commonwealth Bank, and Westpac have revised their interest rate forecasts, now predicting a hike by the Reserve Bank of Australia (RBA) to occur at their upcoming meeting next Tuesday, followed by another increase in May.
Should these projections come to pass, the official cash rate would peak at 4.35 percent. Initially, these major banks anticipated the RBA would hold off until May, a position that ANZ continues to support.
If the predictions from NAB, CBA, and Westpac prove accurate, it would mark three consecutive rate hikes, following the recent 25 basis point increase that brought the cash rate to 3.85 percent on February 3.
NAB attributed their revised forecast to new upward pressure on inflation, which they believe shifts the balance towards an additional rate increase.
NAB said new upside pressure on inflation “tips the balance in favour of an additional increase”.
“The starting point of robust growth, a too-tight labour market and too-high inflation already supported further tightening,” NAB said in a statement today.
“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.”
Westpac said the effect of higher oil prices on inflation was “large but temporary” but believes the RBA will “nevertheless feel compelled to react”.
“There are good arguments for staying on hold until May given the temporary nature of the shock and the possibility of more extreme market instability. A split vote at next week’s meeting is possible,” Westpac chief economist Luci Elli said.
“Market participants should allow for the possibility that the RBA opts to wait until May, but it is no longer our base case.
“Similarly, a swift and clear resolution of the war (and fall in oil prices) or a clear and sudden loss of momentum in domestic activity 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.”
Canstar data insights director Sally said a cash rate hike next week was “not a done deal”.
“The war in the Middle East has cast a huge cloud of uncertainty over the decision, because 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.”
For a borrower with a $600,000 mortgage on a 25-year term, a hike in March would increase their monthly repayments by $91.
If rates were to rise again in May, which all four majors expect, the total increase would be $181 each month.
“These are big numbers and you’re combining them with the end of the electricity rebate, rises in private health insurance premiums, rise in petrol prices,” Tindall said.
“It will be breaking point for some families if we get those one, two, three, punch hikes.”
Tindall encouraged borrowers to “stress-test” their budgets against at least half a percentage point higher.
“For example, if you’re now sitting on a rate of 5.75 per cent, test it out at 6.25 per cent – even 6.50 per cent – to see if it stacks up against your budget,” Tindall said.
“For borrowers, the key message is to prepare for the possibility of higher rates, even if it’s not yet a done deal. Now is the time to make sure your mortgage is competitive.”
NAB and Westpac both expect interest rates to begin to regress to neutral levels in the second half of 2027.
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