Australians struggling with the highest interest rates in a decade are being warned to expect one or two more mortgage bill hikes as the Reserve Bank (RBA) pushes the economy into perilous territory.
A surprise – though not totally unexpected – cash-rate hike last week has forced many experts to tear up their forecasts, with leading analysts now saying 4.6 per cent is on the cards by August.
That implies upcoming RBA meetings in July and August could add another $150 or so to monthly repayments on a $500,000, 25-year home loan – bringing the squeeze since May 2022 to more than $1250.
“We now expect one further 25bp (basis point) increase in the cash rate for a peak of 4.35 per cent, and see it most likely at the August board meeting,” Commonwealth Bank chief economist Gareth Aird said on Friday.
“The risk is a 25bp rate hike earlier in July. There is also a risk of 25bp rate rises in both July and August, which would take the cash rate to 4.6 per cent.”
ANZ Bank forecasters, who did expect the RBA to hike in June, had already pencilled in 4.35 per cent in August, and also think there’s a risk there will be no pause in July.
Thousands more at mortgage risk
Such increases will be painful though, with the economy already slowing sharply in early 2023.
“It is looking more and more difficult for the RBA to bring inflation back into the target band within that “reasonable time frame” without a relatively sharp slowdown in growth,” ANZ senior economist Felicity Emmett said.
Households are at the front lines, with official figures this week revealing families are cutting back on non-essentials like furniture and vehicles, while drawing down on their savings.
Mortgage interest expenses doubled in annual terms over the March quarter, the ABS data showed, with more than $13,000 having been added to annual repayments since May 2022.
Should interest rates rise in July and August, that figure would increase to more than $15,000.
Mortgage stress, which has now risen to its highest level since 2008, could expand significantly as well, with Roy Morgan estimating another hike in July could leave another 77,000 ‘at risk’.
Downturn could be 50-50
Commonwealth Bank economist Harry Ottley said on Friday that further rate rises could push the risk of a recession to a 50-50 chance.
It follows warnings earlier this week from RBA governor Philip Lowe that central bankers are walking a “narrow path” in curbing inflation while retaining jobs.
“The labour market remains very tight but the April survey did include a rise in the unemployment rate from 3.5 per cent to 3.7 per cent and employment fell by (about) 4000,” Mr Ottley said.
Job vacancies are also easing, according to ABS figures published on Friday, but remain at historic highs – enabling a rise in second jobs.
“In the March quarter, 947,300 people in Australia worked two or more jobs, around 6.6 per cent of all people with a job,” Indeed APAC economist Callam Pickering said on Friday.
“This marks a record high for a measure that has traditionally fluctuated between 5 and 6 per cent.”
“There are lots of jobs available and therefore an opportunity to take on additional work if you want more hours,” he continued.
“Second, cost-of-living pressures have created the need for some people to take on additional work to keep their heads above water.”
