Mortgage rate bombshell as ANZ Bank predicts more pain for homeowners after inflation shock 

ANZ Bank has predicted more interest rate pain ahead with a warning that it expects interest rates to rise by 0.5 percent, adding nearly $250 a month to mortgages.

Analysts have revised their expectations of the maximum cash interest rate to be imposed by the Reserve Bank of Australia from 4.1 percent to 4.35 percent.

The current spot rate is 3.85 percent, but the latest rising inflation rate has led to warnings that the spot rate will rise again, likely by 0.25 percent.

And ANZ’s latest forecast says it now expects a further 0.25 percent rise, with interest rates peaking in August in the fight against rising costs.

“We are moving our forecast of the RBA’s terminal cash rate to 4.35 percent,” the bank said Friday.

‘We no longer see 4.1 percent as sufficient to bring inflation back to target within the foreseeable future. We are most likely to see August for a move.”

Raising interest rates by 0.5 percent would add an additional $229 per month to the current average NSW mortgage of $710,000.

Nationally, the average $600,000 mortgage would increase by $195 per month, sending payments up to $3,789.

That’s $1,483 more per month — or $17,796 more per year — compared to early May 2022, when rates began to climb in the first increases since November 2010.

The warning comes after headline inflation unexpectedly rose to 6.8 percent in April, after falling to 6.3 percent the previous month.

Rising energy and fuel costs, year after year, played a big part in the shocking inflation rate, but RBA Governor Philip Lowe said the rent crisis also played a key role.

“It’s a very important issue because rents are the largest component of the CPI,” he told a Senate committee on Wednesday.

‘We expect rent growth, measured in the CPI, to be around 10 percent.

“It’s very tough and some people are experiencing bigger rent increases than that.”

Dr. Lowe blamed the pandemic for fewer people living together in every Australian home, but said rising rents and house prices acted as a deterrent for those living alone, forcing them to share.

‘The population will grow by two percent this year, will there be two percent more homes? No,’ he said.

‘Don’t the higher prices cause people to economize on housing?

“Kids don’t move out because the rent is too expensive, or you decide to get a roommate or roommate,” he said.

‘On average we need more people to live in each house and the prices do that.’

But he admitted: ‘It’s one of the biggest challenges we face as a country. It’s hard to change the design of our cities because there are so many vested interests.’

Rising energy and fuel costs, year after year, played a big part in the shocking inflation rate, but RBA Governor Philip Lowe said the rent crisis also played a key role

The RBA will release its final spot rate statement next week, but ANZ Bank experts admit it is now difficult to make definitive predictions about how the RBA will trade.

But it says it expects a 0.25 percent rise in June or July in the ongoing inflation crackdown, followed by another identical rise in August.

“In terms of timing, we recognize the challenge of calling the RBA on a month-to-month basis,” a spokesman for the ANZ Research Department said.

“We view August as the most likely month for a switch from the RBA, driven by the quarterly forecast update cycle and inconvenient timing around inflation returning to target.

For that, we expect an increase in June or July (in our view, the month is a decision).

“Given our view that higher interest rates are more likely and the Bank’s long-standing tendency not to delay, we favor a rate hike in June.”

NAB economists think the spot rate will peak at 4.1 percent, while Commonwealth Bank and Westpac expect no further rate hikes.

AMP chief economist Shane Oliver previously warned that a 4.1 percent cash interest rate would trigger a recession.

The cash rate has increased 11 times since May 2022 as the nation struggles to cope with the rising cost of living.