National Australia Bank now predicts two more rate hikes that would take cash rate to 4.6 per cent

One of Australia’s largest banks is now forecasting two more rate hikes by August as a hefty increase in the minimum wage keeps inflation high.

National Australia Bank has updated its forecasts that the Reserve Bank will hike rates in July and August, bringing the cash rate to 4.6 percent and adding $295 to monthly mortgage payments on an average loan.

This would be the highest level since November 2011 and would be the 14th increase since May 2022, with rates already rising at their fastest pace in 34 years.

Despite the rising numbers, a majority of Australians still expect house prices to rise in the coming year, with one think tank warning that record immigration will mean the country will be short of 252,800 homes by 2028.

NAB chief economist Alan Oster and his team of senior analysts said the RBA was likely to keep interest rates rising until August as high wage growth kept inflation well above its target of two to three percent.

While inflation has clearly peaked and we – like the RBA – see inflation returning to the band by 2025, the prolonged period of inflation above target amid a tight labor market poses the risk that stronger wage and price expectations will become embedded hit,” NAB said.

National Australia Bank has updated its forecasts that the Reserve Bank will raise rates in July and August, bringing the cash rate to 4.6 percent (pictured is a bank branch in Perth)

NAB said an 8.6 per cent minimum wage increase, affecting 184,000 of Australia’s lowest paid workers, was likely to encourage other workers, based on collective and individual agreements, to demand bigger wage increases.

What a rate increase means for you

A borrower with an average mortgage of $600,000 now pays $3,633 per month, based on a variable rate of 6.09 percent and a mortgage deposit of 20 percent.

This Friday, that will rise $97 to $3,730 as a Commonwealth Bank floating rate rose 25 basis points to 6.34 percent to reflect the Reserve Bank’s rate hike in June, pushing cash rates to a high. rose 4.1 percent in 11 years.

Two more rate hikes on top of that — as NAB predicts — would take the RBA money rate to 4.6 percent, the highest level since November 2011.

That would push monthly repayments to $3,928 while floating interest rose to 6.84 percent.

That would represent an increase of $295 compared to today.

With the labor market remaining tight and wage growth accelerating, the main risks to inflation staying high for longer come from the services side – as globally.

An additional 2.5 million Australian workers with awards will also receive a 5.75 per cent wage increase on July 1, following the Fair Work Commission’s decision earlier this month.

The NAB economists predicted that the aggregate wage price index ‘continue to strengthen in the coming quarters, with the most recent national wage situation predicting even faster wage growth for a significant part of the working population, albeit the lower paid”.

The 12 interest rate hikes in the past 13 months were already the most aggressive pace of monetary tightening since the Reserve Bank introduced a target cash rate in 1990.

They haven’t risen that fast since 1988 and 1989.

The RBA cash rate is now at an 11-year high of 4.1 percent, with monthly variable mortgage payments already up 58 percent from just over a year ago, even before borrowing costs went up later this week.

Inflation rose to 6.8 percent in April from 6.3 percent in March, according to monthly figures from the Australian Bureau of Statistics.

The wage price index rose 3.7 percent in the March quarter, the highest since 2012 and the Reserve Bank of Australia expects it to reach 4 percent this year for the first time since 2009.

Two more rate hikes mean that a borrower with an average mortgage of $600,000 would see their monthly repayments rise another $295 to $3,928, up from $3,633 now before banks raised their variable mortgage rates on Friday to reverse the latest increase in interest rates. 25 basis points of the RBA.

NAB said an 8.6 per cent cut from the minimum wage, affecting 184,000 of Australia’s lowest paid workers, was likely to encourage other workers, on collective and individual agreements, to demand bigger wage increases (pictured is a bartender in Bunbury south from Perth)

A Commonwealth Bank borrower with a 20 percent deposit now pays a floating rate of 6.09 percent, but that will rise to 6.34 percent in three days.

What the big banks are now predicting

COMMON WEALTH BANK: Rise in July bringing Reserve Bank cash interest rate to 4.35 percent. Then 1.25 percentage points of spending cuts in 2024 to a cash rate of 3.1 percent

WESTPAC: Increase in July to a peak of 4.35 percent. Then 1.5 percentage points of cuts in 2024 to a cash rate of 2.85 percent

NAB: Hike in July and August to a peak of 4.6 percent. Then 1.5 percentage points of cuts in 2024 to a cash rate of 3.1

ANZ: Rise in August to peak cash rate at 4.35 percent, though additional hike possible. One cut to 4.1 percent at the end of 2024.

Source: RateCity

As recently as May 2022, this borrower was paying 2.29 percent mortgage interest and $2,306 a month in principal payments, but those have since risen 58 percent.

Australians are down on the economy following the wave of rate hikes, but the Westpac-Melbourne Institute’s consumer sentiment for June showed that 60 per cent of people expected house prices to rise over the next 12 months, based on a survey of 1,200 adults.

Westpac chief economist Bill Evans said this would worry the Reserve Bank.

“Home price expectations have been resilient to the rate hike — a concern for the RBA,” he said.

Home prices rose in May in every state capital and territory, with Sydney seeing the largest monthly increase of 2.1 percent despite having the most expensive median home price of $1,293,529, data from CoreLogic showed.

This is happening as the Treasury predicts a record 400,000 migrants will move to Australia in 2022-2023, the bulk of which will settle in Sydney and Melbourne.

The Institute of Public Affairs, a libertarian think tank, feared Australia could be short of 252,800 homes by 2028, based on their forecast that unplanned immigration will rise by 1.75 million over the next five years.

Of these, New South Wales would have the largest deficit at 70,889, followed by Victoria (62,168), Queensland (54,591), Western Australia (34,720), South Australia (18,162), Tasmania (8,922), Northern Territory (2,624) and the Australian Capital Territory (2,325).

Daniel Wild, deputy executive director of the IPA, said high population growth would deter many Australians from owning their own homes.

“Every Australian should have the opportunity to own their own home, but rising demand due to unplanned migration growth will make housing even less affordable for both Australians and new migrants,” he said.

Australians are down on the economy following the wave of rate hikes, but the Westpac-Melbourne Institute’s consumer sentiment for June showed that 60 per cent of people expected house prices to rise over the next 12 months, based on a survey of 1,200 adults (pictured is a house in Chatswood on the north coast of Sydney)

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