Mortgage holders warned to prepare for rising interest rates: ‘RBA strategy not working’

Homeowners have been warned that the Reserve Bank of Australia (RBA) could raise interest rates three times this year. Consumer price index (CPI) data for the first quarter of 2024 was released this week and dashed hopes for a rate cut this year.

Inflation has fallen since the December quarter, from 4.1 per cent to 3.6 per cent. The figures showed that price pressures still persisted in the economy, especially in services such as education, health, rents and insurance.

Many have been crossing their fingers for mortgage relief, but Judo Bank chief economic advisor Warren Hogan told the Australian Financial Review The road ahead could be more painful before it gets better.

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Hogan predicts the RBA will have three 0.25 point increases this year, which would take the cash rate to 5.1 per cent.

“Everything indicates that 4.35 percent is not the appropriate level for the cash interest rate,” he said.

“The RBA’s strategy in this cycle does not seem to be working. “They expected us to be able to do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages.”

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Hogan believes the RBA needs to raise the cash rate above 5 per cent, as do the UK, US and New Zealand, and estimates the increases will come at the August, September and November meetings.

But his prediction has not been influenced by the quarterly CPI figures for March, but is based on the “high number of vacant positions.” Hogan is concerned that companies have not been able to meet demand and are struggling to find reliable labor.

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According to Australian Bureau of Statistics figures released this month, the unemployment rate rose to 3.8 per cent in March, up from 3.7 per cent in February. While it was higher than the previous month, it was 0.1 percent lower than forecasts.

These figures added to expectations that the RBA would not move towards a rate cut any time soon.

“While inflation in Australia is expected to continue to fall towards the target band and economic growth has slowed materially, a more balanced labor market with less pressure on wage growth will be necessary for the RBA to consider lowering interest rates.” “said KPMG economist Michael Malakellis. .

The better-than-expected CPI numbers prompted Westpac to push back its interest rate easing forecast from September to November, aligning the bank’s economists with two of the big four, ANZ and NAB.

Commonwealth Bank is still targeting September for now, but said risks are skewed towards a November start.

Other forecasters do not expect easing to begin until next year and there is also a diversity of opinion on how many cuts will be made; variables that RateCity research director Sally Tindall says will greatly impact borrowers.

– with AAP

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