OECD expects Reserve Bank of Australia to hike cash rate to 3.6 per cent

The Paris-based OECD expects Australian interest rates to reach an 11-year high of 3.6 percent in 2023 as inflationary pressures worsen.

The international financial experts are even more concerned about rising interest rates than three of the Australian Big Four banks.

Australian home borrowers have endured five consecutive monthly hikes since May, pushing the cash interest rate to a seven-year high of 2.35 percent in September.

The end of the record low interest rate of 0.1 percent has led the Reserve Bank of Australia to implement its most severe monetary tightening since 1994.

But the OECD predicts more pain next year and an 11-year high cash rate of 3.6 percent in Australia.

“In most major advanced economies, further policy rate hikes are needed to ensure that forward-looking measures for real interest rates turn positive and inflationary pressures are lastingly reduced,” it said.

The key rate is expected to rise to 4.5 to 4.75 percent in the United States, 4.5 percent in Canada and 4.25 percent in the United Kingdom in 2023, as a result of the visible pressure on the labor market in this region. countries, and 3.6 percent in Australia.’

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Should the OECD’s forecast for Australia come true, a borrower with a loan averaging $600,000 would owe $1,116 more per month in repayments, compared to early May, when the cash interest rate was still at a record low of 0.1 percent. was standing.

Compared to now, this borrower would owe their bank an additional $456 per month in 2023, while their repayments rose from $2,966 to $3,422.

As late as May, this borrower would have owed $2,306 per month to pay off a typical loan with a lower floating rate.

Only one of the Big Four banks agrees with the OECD, with Westpac forecasting an RBA cash rate of 3.6 percent by February next year.

ANZ is forecasting a cash interest rate of 3.35 percent by December, but hinted Tuesday it was reviewing that forecast.

In Australia, we are considering whether additional increases are needed beyond our peak forecast of 3.35%.

The Commonwealth Bank, Australia’s largest mortgage lender, has forecast a cash interest rate of 2.6 percent for November.

NAB forecasts a cash interest rate of 2.85 percent by November.

Australia headline inflation rose 6.1 percent in the year to June – a level well above the RBA’s 2 to 3 percent target.

The Reserve Bank expects it to hit a 32-year record of 7.75 percent by the end of 2022, before moderating to 4.25 percent by the end of 2023.

The OECD is slightly less optimistic and forecasts inflation of 4.4 percent in 2023.

It also predicts a recession in the eurozone and US economies as annual growth slowed to just a quarter of a percent compared to half a percent in the US

Australia’s gross domestic product is expected to slow to two percent by 2023, from a projected 4.1 percent for 2022.

The OECD noted that inflation in G20 economies, including Australia, was already on the rise as Russia invaded Ukraine and pushed up crude oil prices.

Even before the Russian invasion of Ukraine, inflation in most G20 economies was above central bank targets, driven by the initial surge in energy prices as economies reopened after the pandemic, supply chain bottlenecks, rising freight costs and the shift in the composition of private consumption relative to goods,” it said.

ANZ is now forecasting a recession in the UK in 2023 and ‘shallow recessions’ in the EU and US as growth slows in China, Australia’s largest trading partner.

“In the coming years, China is likely to see slower growth, ending two decades of its economic exceptionalism,” it said.