National Australia Bank makes grim interest rate forecasts for millions of homeowners – here’s what you need to know
- NAB expects another rate hike in July
- Predictions changed days after Budget
The National Australia Bank now expects the Reserve Bank to raise interest rates again – changing its forecast just days after the budget.
Australia’s largest corporate lender is forecasting another rate hike of 0.25 percentage point in July, which would take cash rates to a new 11-year high of 4.1 percent.
NAB chief economist Alan Oster stressed that the bank’s revised forecast did not reflect Treasurer Jim Chalmers’ latest budget, which increased JobSeeker’s unemployment benefits by $40 every two weeks.
“Importantly, our pricing is not in response to the recent federal budget, which we believe is largely neutral in terms of its effects on inflation and implications for monetary policy,” he said.
The National Australia Bank now expects the Reserve Bank to raise interest rates again – changing its forecast just days after the budget
But a rate hike in July would be the 12th hike since May 2022 and the most severe since the era of an RBA rate target began in 1990.
The Reserve Bank raised rates in May, surprising financial markets, although inflation had eased to 7 percent in the March quarter, down from a 32-year high of 7.8 percent at the end of 2022.
NAB said a rate hike in July was now highly likely after RBA Governor Philip Lowe hinted this month that more rate hikes were likely to tame inflation as the spot rate was raised by 25 basis points to 3.6 percent.
“After a series of surprises from the RBA in recent months, we are returning to our baseline expectation from February that the cash rate will rise to a peak of at least 4.1 percent – which we are signing in for July, although we see some risk from the RBA could wait until August,” it said.
ANZ also expects another rate hike, but in August that would bring the cash rate to 4.1 percent.
Oster doesn’t believe another rate hike will trigger a recession, but AMP chief economist Shane Oliver fears it will.
This would be the first economic contraction caused by tighter monetary policy since 1991, after interest rates reached 17.5 percent in January 1990.
The Commonwealth Bank, Australia’s largest mortgage lender, says its May rate hike was its last and expects a rate cut of 0.25 percentage point in November.