Judo Bank boss Warren Hogan declares Reserve Bank will hike interest rates three times this year – and he was right about 2023

Judo Bank now predicts that the Reserve Bank will raise interest rates three times by 2024 to levels not seen in 16 years – pushing average mortgage repayments up by $300 a month.

Warren Hogan, the bank’s chief economic adviser, predicts cash rates will rise to 5.1 percent by Christmas, up from the existing 12-year high of 4.35 percent.

This would take the Reserve Bank of Australia’s cash rate to levels last seen in December 2008, during the global financial crisis.

A borrower with an average mortgage of $600,000 would see their monthly payments rise by another $300, following the most aggressive rate hikes in a generation.

Until Wednesday, the Commonwealth Bank and others were forecasting three rate cuts in 2024, but higher-than-expected inflation data released on Wednesday has prompted economists to reevaluate their forecasts.

While annual headline inflation fell to 3.6 percent in the March quarter, an underlying inflation measure showed prices still rose 4.4 percent.

This is well above the Reserve Bank’s target of 2 to 3 percent.

Mr Hogan, a former chief economist at ANZ, said inflation was higher than the Reserve Bank expected, despite most Australian borrowers having variable rate mortgages.

“They hoped that we could do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages,” he said. The Australian Financial Review.

‘We just have to get to the [cash rate] level that other countries have, namely 5 percent.’

Even with three rate hikes, an Australian cash rate of 5.1 percent would still be lower than New Zealand’s 5.5 percent and Canada’s 5 percent.

Australian borrowers have already experienced 13 rate hikes in 18 months, between May 2022 and November 2023, already the most aggressive rate hikes since 1989.

Mr Hogan is one of the few economists still forecasting more rate rises and was the only one polled by the AFR to predict the RBA cash rate would be 4.35 per cent.

In November, a month before the Commonwealth Bank updated its forecasts to predict six rate cuts in 2024 and 2025, former Reserve Bank board member Warwick McKibbin predicted three more rate hikes.

Three more rate increases mean that a borrower with an average mortgage of €600,000 would see their monthly repayments rise by a further €303 to €4,171, an increase of €3,868.

This would happen if the Commonwealth Bank variable rate rose to 7.44 per cent, an increase of 75 basis points from the current 6.69 per cent for a borrower with a 20 per cent mortgage deposit.

The 30-day interbank futures market has already ruled out any rate cut in 2024, but Westpac is now predicting a rate cut in November, from September.

Higher-than-expected inflation has also led to a rise in government bond yields, indicating that financial markets are gradually pricing in the prospect of possible rate hikes in 2025.

Inflation is rising faster than expected as unemployment remains below 4 percent, after recently falling to its lowest level in almost 50 years.

‘The RBA wants to preserve the employment gains from the pandemic… which means they are trying to eliminate inflation without net job losses. That’s fine, but we’re still creating jobs; said Mr. Hogan.

“It looks like we’re straying off the narrow path, and things aren’t going according to plan.”