Westpac warns customers of sweeping interest rate hikes

Australians with a typical loan of $600,000 could pay $125 more on their mortgage by June as high inflation forces the Reserve Bank to act after the election.

Expensive gasoline and China’s Covid restrictions are making goods much more expensive and pushing inflation to levels not seen in nearly 14 years.

Official consumer price index data for the March quarter is due out on Wednesday, with Westpac expecting a high headline inflation rate of 4.9%.

The banking giant’s chief economist, Bill Evans, said the highest inflation since the September 2008 quarter was likely to see the Reserve Bank of Australia raise the benchmark rate by 0.4 percentage points in June.

The larger 40 basis point increase would take the cash rate from a record high of 0.1% to 0.5% as the RBA raised rates for the first time since 2010.

It would also be much larger than the usual increase of 25 basis points, or 0.25 percentage points.

“One possibility could be that a more cautious 25 basis point increase in June is followed by a 40 basis point move in July,” Evans said.

“However, we expect market and media expectations to move towards a 40 basis point move over the next six weeks.”

Australians with a typical loan of $600,000 could pay $125 more on their mortgage payments by June as high inflation forces the Reserve Bank to act (pictured is an image of a new borrower unpacking boxes)

A borrower with a typical loan of $600,000 – at a low floating rate of 2.29% – would see his monthly repayments rise from $2,306 to $2,431 if his bank passed on the RBA increase in full, raising his rate variable at 2.69%.

The big banks all expect the RBA to move in June, instead of next month before the May 21 election, which would mark the first rate hike since November 2010.

New Zealand and Canada both raised cash rates this month by 50 basis points as the supply chain crisis and Covid restrictions cause global inflationary concerns.

Last year’s headline inflation rate of 3.5%, as measured by the Australian Bureau of Statistics, was already well above the RBA’s 2-3% target.

Since the December quarter figures, Russia’s invasion of Ukraine has pushed average Australian petrol prices above $2 a liter for the first time ever.

In the March 29 budget, the federal government then halved the excise duty on fuel for six months to 22.1 cents per litre.

With national gasoline prices now back to $1.70 per litre, Westpac forecasts a 10.9% increase in fuel costs in the March quarter alone.

In some capitals, however, prices at the pump have returned to $1.90 per litre.

Official inflation data for the March quarter is due out on Wednesday, with Westpac expecting a high headline inflation rate of 4.9%.  Westpac chief economist Bill Evans said the highest inflation since the September 2008 quarter could see the Reserve Bank of Australia raise the cash rate by 0.4 percentage points in June (on photo, a Melbourne auction at Glen Iris)

Official inflation data for the March quarter is due out on Wednesday, with Westpac expecting a high headline inflation rate of 4.9%. Westpac chief economist Bill Evans said the highest inflation since the September 2008 quarter could see the Reserve Bank of Australia raise the cash rate by 0.4 percentage points in June (on photo, a Melbourne auction at Glen Iris)

House prices in Sydney and Melbourne fall as other cities grow

SYDNEY: Down 0.1% in March, but up 20.6% on the year to $1,403,154

MELBOURNE: Down 0.2% in March, but up 11.9% yoy to $999,037

BRISBANE: Up 2.1% in March, up 32.1% year on year to $856,731

ADELAIDE: Up 2% in March, up 28.7% year on year to $658,446

PERTH: Up 1% in March, up 7.2% year on year to $568,108

HOBART: Up 0.3% in March, rising 21.9% annually to $791,587

DARWIN: Up 0.7% in March, up 7% year on year to $569,647

CANBERRA: Up 0.8% in March, up 22.4% year on year to $1,055,812

Source: CoreLogic median house price data for March 2022

CommSec chief economist Craig James said rising gasoline prices and Covid restrictions in China will drive headline inflation up 4.3% a year in the March quarter.

“Rising global oil prices and the end of discount cycles in Australian capitals combined to push prices at the pump close to $1.80 to $1.90 per liter last week,” he said. he declared.

“There are also concerns about global energy demand given the ongoing Covid lockdowns in China.”

Heavy rains also disrupted harvests, with Westpac forecasting a 6.6% quarterly rise in fruit and vegetable prices.

Economist Saul Eslake, founder of Corinna Economic Advisory, said the RBA would likely raise interest rates in early May if inflation was particularly high.

“What might cause them to raise rates in May is the March quarter CPI,” he told Daily Mail Australia.

“It would be difficult, I think, for the Reserve Bank not to raise rates if that’s the evidence they have.”

Mr Eslake said delaying a rate hike until June, to avoid acting just two weeks before the May 21 election, could mean a 0.4 percentage point hike later.

“Either they raise rates in May in response to the March quarter CPI or if they don’t, they can be blamed by some people – I’m not going to be one of them – d ‘be shy about the election,’ he said. mentioned.

Last year, Reserve Bank Governor Philip Lowe repeatedly promised to keep the exchange rate at a record 0.1% until 2024 “at the earliest”.

But the RBA, in the minutes of its April meeting, predicted that rising petrol, food and commodity prices “would lead to a further rise in inflation over the coming quarters. “.

CommSec chief economist Craig James said rising gasoline prices and China's Covid restrictions will drive headline inflation up 4.3% a year in the March quarter (on photo, a motorist in Sydney refuels)

CommSec chief economist Craig James said rising gasoline prices and China’s Covid restrictions will drive headline inflation up 4.3% a year in the March quarter (on photo, a motorist in Sydney refuels)

Australia’s unemployment rate of 3.95% in March was the lowest since September 1974, with economists expecting a tight labor market to fuel wage pressures.

National home prices in the year to March jumped 18.2% to $738,975, CoreLogic data showed.

A borrower with a 20% deposit would owe $591,180.

An average full-time worker with a salary of $90,917 would have a debt-to-income ratio of 6.5 – a level above the Australian Prudential Regulation Authority’s threshold “six”.

Ratings agency Fitch Ratings said on Tuesday that rising house prices were a problem as Australians took on more debt and entered mortgage stress territory.

“House price growth has accelerated through 2021, which could pose medium-term risks if fueled by credit growth that translates into a significant increase in household debt” , did he declare.

The ratio of Australian household debt to disposable income, after tax, at the end of 2021 was 186%, which was higher than the level of 180% at the end of 2020.

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