Australians are expected to take a hit to their finances just before Christmas with the Reserve Bank of Australia tipped to raise interest rates again.
In the final decision for 2022, the RBA could push rates up further for the eighth consecutive month, after hikes began in May from a record low of 0.1 per cent.
Currently, interest rates are sitting at 2.85 per cent after they were pushed up by 0.25 per cent in November.
Experts have tipped the RBA to hike rates by a further 0.25 per cent in December taking them to 3.1 per cent, which will lift the official cash rate to its highest level in 10 years.
The major banks ANZ, NAB and Westpac have all forecast a 0.25 per cent increase, while Commonwealth Bank has also tipped the same rise although said there was a small chance of “no change”.
An 0.25 per cent increase would take the average discounted mortgage rate to 6.55 per cent, up from 3.45 per cent in April.
It means that months of interest rate hikes have seen $750,000 mortgages be slugged with an extra $1418 to monthly repayments.
Another 0.25 per cent rise would typically add $75 to monthly repayments for each $500,000 borrowed, according to RateCity, while homeowners with a $1.5 million loan would have seen their repayments jump by a whopping $2500 since May.
AMP chief economist Shane Oliver has backed a 0.25 per cent increase.
“Still high inflation, strong jobs and wages data and the absence of an RBA meeting in January are likely to drive another 0.25 per cent hike in December to 3.1 per cent, with the risk of one more hike to 3.35 per cent in February but by end 2023 we expect weak growth and a sharp fall in inflation to drive the start of rate cuts,” he said.
Bendigo Bank chief economist David Robertson said the RBA “will almost certainly” increase rates by 0.25 per cent this month, adding up to 3 per cent worth of hikes since May.
“Given the latest consumer price index data they will probably increase rates again in February, before a pause. Globally supply is slowly improving, which may see rates plateau in the low to mid 3 per cent, “ he said.
REA Group’s Cameron Kusher added the RBA had been clear there is still work to do to tame inflation and said he expected interest rates increases in December, as well as February and March next year and then a period of stability.
Last month, the RBA governor Philip Lowe flagged more interest rate increases after he issued a warning about inflation, saying that Australia risks a “severe recession” if the organisation doesn’t lift interest rates to combat the cost of living.
“The eel of inflation will be with us for longer (if we don’t lift rates) and the eventual increase in interest rates needed to bring inflation down will be even larger is would increase the risk of a seed, severe recession, and a sharp rise in unemployment,” he said during a speech to business leaders in Hobart in November.
Inflation is currently sitting at 7.3 per cent, something the RBA has been trying to tackle, as the cost of living increases sit at their highest since the 1990s.
Dr Lowe indicated rate hikes could become more aggressive in response to ever-rising inflation.
“If we need to step up to larger increases again to secure a return of inflation to target we will do that,” he said.
“Similarly, if the situation requires us to hold steady for a while, we will do that.
“Given the uncertainties regarding the outlook, we will be watching very carefully how the economy and the inflation pressures evolve over the summer.”
However, there could be some relief in sight for homeowners with some experts predicting the RBA to pause its aggressive round of rates hikes from next year.
HSBC senior economist Paul Bloxham saying there was a real chance the RBA could pause rising rates in early 2023, although hikes could return later in the year if the inflation problem lingers.
However, Morgan Stanley has tipped rates to keep increasing.
“Inflation is likely to show some re-acceleration, wage growth should continue to rise, and while spending and unemployment are likely to begin to turn, both will still be quite strong,” a note from the bank said.
“We forecast further 25 basis points hikes from the RBA in February and March to a terminal cash rate of 3.6 per cent.”
As for Australia’s big banks, CBA has predicted rates to stay at 3.1 per cent, while Westpac and ANZ expect it to peak at 3.85 per cent in May.
It comes as the looming “mortgage cliff” is set to hit next year with at least $270 billion in mortgages coming off historically low fixed interest rates.
“Around 35 per cent of outstanding housing credit is on fixed-rate terms,” the RBA said in its financial stability review in October. “Around two-thirds of these loans are due to expire by the end of 2023.”
Dr Lowe issued a stunning apology to Australians who took out a mortgage – during a period of record property prices, no less – based on the RBA’s repeated insistence that the official cash rate would not increase until 2024.