ANZ expects 50 basis points Reserve Bank rate hike in August, September, October, November
Banking giant ANZ now expects borrowers to tackle four 50 basis point rate hikes in November – with the country’s major banks expecting cash rates to settle in 2023 once inflation is under control.
The Big Four on Tuesday forecast the Reserve Bank of Australia’s cash rate would more than double from an existing three-year high of 1.35 percent to a 10-year high of 3.35 percent on Melbourne Cup Day.
ANZ chief economist David Plank expects the RBA to raise interest rates by 0.5 percentage points in a row in August, September, October and November – and keep rates at that level throughout 2023 and 2024.
“We think the RBA will take its cash rate target to a tight setting above three percent by the end of 2022, more than 12 months earlier than our previous estimate,” he said.
A two percentage point increase in mortgage rates in November would leave borrowers with an average $600,000 mortgage owed $708 more a month in payments as the RBA cash rate hit its highest level since October 2012.
But Mr Plank said there was an outside possibility the Reserve Bank would raise interest rates by 75 basis points at one of its meetings this year.
“We think a move of more than 50 basis points in August or September is a very real possibility, though not the main case,” he said.
“It could be more than 75 basis points, or even 65 basis points if the RBA wants to ’round’ the interest rate target to 0.25 percent.”
With inflation set to hit its worst level in 32 years, ANZ has updated its forecast to more than double the Reserve Bank’s interest rate from 1.35 percent now to a 10-year high of 3.35 percent on Melbourne Cup Day. ANZ chief economist David Plank said this would see the RBA raise interest rates by 0.5 percentage point in August, September, October and November (pictured is the Seven Hills branch west of Sydney)
Since May, Australian borrowers have cut 1.25 percentage points off the RBA’s rate hike – with subsequent hikes in June and July marking the sharpest monetary policy tightening since 1994.
If ANZ’s forecasts come true, Australian borrowers would see interest rate hikes of 3.25 percentage points in six months – the sharpest increase since the Reserve Bank began issuing cash rate targets in 1990.
ANZ is the only top four bank whose forecasts are now in line with the 30-day interbank futures market, which forecast a cash rate of 3.35 percent but was in December.
ANZ expects its June quarter inflation data, due for release on July 27, to show the consumer price index soaring 6.3 percent – the fastest pace since 1990.
In a sign of possible things to come for Australia, New Zealand’s inflation rate in the year to June jumped by 7.3 percent, the biggest increase in 32 years.
Commonwealth Bank, Australia’s biggest home lender, expects a 2.6 percent cash rate in November, based on 50 basis point gains in August and September followed by a 25 basis point move on Melbourne Cup Day.
Westpac has released new forecasts showing the Reserve Bank’s cash rate will peak at a nine-year high of 2.6 percent in February 2023 and remain at that level until at least December 2025.
Prior to that, home borrowers are expected to cope with another 0.5 percentage point rate hike in August.
ANZ is the only top four bank whose forecasts are now in line with the 30-day interbank futures market, which forecast a cash rate of 3.35 percent but in December
Since May, Australian borrowers have earned 1.25 percentage points from the RBA’s rate hikes – with subsequent hikes in June and July marking the sharpest monetary policy tightening since 1994 (pictured is a Melbourne auction)
Westpac chief economist Bill Evans released a video last week predicting gains of 0.25 percentage point in November, December and February.
“I’d like to see a break in September and October,” he said.
But Evans expects the tightening cycle to resume in November, with a series of 25 basis point gains, after inflation for the September quarter, which is scheduled for October 26, showed worse figures than the June quarter.
“They have to respond to that and we’re expecting 25 in November, 25 in December and then another one in February,” Evan said.
ANZ now expects unemployment, which in June fell to a 48-year low of 3.5 percent, could fall to 3.3 percent this year and even below 3 percent – leading to wage pressures driving inflation.
‘The unemployment rate by 2-handle is not out of the question,’ said Mr Plank.
“Importantly we expect wage growth to pick up during the year and 2023, although the pace of rate hikes is faster, remember, largely due to a tighter-than-expected labor market.
“What’s more, we think wage growth will prove quite persistent even as the economy slows.”
New CoreLogic data has revealed a 41.9 per cent fall in Australia’s home and unit market in the June quarter, based on the median price in the capital’s zip codes.
In comparison, 23.6 percent of the market experienced a decline in the March quarter before the RBA’s rate hike but as banks hiked their fixed mortgage rates.
Data on the capital’s 3,085 property markets included the May and June rate hikes that brought interest rates to 0.85 percent but not the latest July hike that brought interest rates to a three-year high of 1.35 percent.
Westpac has released new forecasts showing the Reserve Bank’s cash rate will peak at a nine-year high of 2.6 percent in February 2023 and remain at that level until at least December 2025 (pictured is the Melbourne branch)
CoreLogic economist Kaytlin Ezzy said the downturn that started in Sydney and Melbourne is now spreading to Brisbane, Canberra and Hobart.
“Historically, premium suburbs have been more volatile than more affordable areas, value spiked more rapidly during an upswing, but was among the first to drop during a downturn,” he said.
Sydney was the worst-affected with an 81.1 percent fall in the home market during the June quarter.
The median home price fell three percent during the June quarter to $1.382 million but three out of four suburbs still had a midpoint home value of more than $1 million with no home market below $500,000.
Sydney unit prices fell 2.1 percent in the June quarter to $821,850.
Melbourne’s median house price fell 2.4 percent in the June quarter to $975,850 with 80 percent of the home market affected, compared with 60 percent of the unit market.
The slump that started in the eastern part of the city is now spreading.
“While units in some of the more expensive inner-city areas are starting to decline nationwide, fewer unit markets fell during the quarter than homes,” said Ezzy.
New CoreLogic data has revealed 41.9 per cent of the housing and unit market in Australia fell in the June quarter, based on median prices in the capital’s zip codes (pictured are Melbourne inner-city homes)
The median Hobart home price fell 0.5 percent to $796,863 during the June quarter with half the market down.
But house prices rose in Brisbane, Adelaide, Perth, Darwin and Canberra during the final three months of the 2021-22 financial year.
Brisbane’s median home price rose 2.5 percent during the June quarter to $892,133 but 11.6 percent of its home market experienced a quarterly decline in value.
The RBA’s May increase was the first since November 2010, ending an era of low cash rates of 0.1 percent after March quarter inflation data showed the consumer price index jumped 5.1 percent – the fastest pace in 21 years.
The increase of half a percentage point in June was the steepest since February 2000.
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