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Interest rates may not rise as much as many fear as financial markets are less concerned than some of Australia’s big banks.
Unlike the major banks, the futures market has a better and more consistent track record of predicting policy rate hikes.
The Reserve Bank of Australia raised the cash rate for the eighth straight month on Tuesday, with the latest rise of 0.25 percentage point taking it to a 10-year high of 3.1 percent, up from a nine-year high. previous 2.85 percent.
Two of Australia’s big four banks, Westpac and ANZ, expect the RBA to hike rates a further three times in February, March and May, to an 11-year high of 3.85 percent.
But the futures market, which bets on interest rates, expects a less severe spike to 3.55 for September.
Interest rate hikes may not be as severe as many fear as financial markets are less worried than some of Australia’s big banks (an auction in Melbourne pictured)
Rounding it up to 3.6 per cent, this would imply an increase of 0.25 percentage points less than what Westpac and ANZ expect.
The Australian Stock Exchange 30-day interbank cash rate futures price is in line with NAB’s forecast that the RBA cash rate will peak at 3.6 percent in March, at least in the prediction of the maximum level.
But it is factoring in a further rate hike compared with the Commonwealth Bank, which on Tuesday updated its forecasts for the Reserve Bank’s cash rate to end at 3.35 percent in February instead of 3.1. percent in December.
The latest RBA hike means that since May, borrowers have received rate hikes worth three percentage points.
This is the most severe pace of monetary policy tightening in a calendar year since the Reserve Bank began publishing a target cash rate in 1990.
It exceeds the 2.75 percentage point increases of 1994.
The eighth consecutive rate increase is also the highest on the RBA’s records for almost 33 years.
A borrower with an average mortgage of $600,000, with the last rate increase in December, will see their monthly payments increase by another $91 to $3,236, from $3,145.
Australian Stock Exchange 30-day interbank cash rate futures are trading at a cash rate high of 3.6 percent for September, based on rounding.
Reserve Bank of Australia Governor Philip Lowe gave an explicit hint on Tuesday that this latest rate hike would be far from the last.
This represents an increase of $930 from May, when the era of the record 0.1 percent cash rate ended.
If the RBA cash rate were to rise to 3.6 percent, as the futures market expects, the monthly payments on a $600,000 mortgage would rise to $3,422.
That would be an increase of $1,116 from the May 2022 level of $2,306 and would be $277 higher than the existing payment obligation of $3,145, before the latest rate increase took effect.
Commonwealth Bank variable rates were still at 2.29 percent in May, when the RBA cash rate was at a record low of 0.1 percent.
The latest rate increase will take it up to 5.04 percent, to reflect the new cash rate of 3.1 percent.
If the futures market is to be believed, it would rise to 5.54 percent, to reflect the Reserve Bank’s cash rate hike by another 0.5 percentage point to 3.6 percent.
The futures market has a good track record of coming close to predicting Reserve Bank cash rate movements.
In July, when the cash rate was still at 1.35 percent, he predicted that the cash rate in December would exceed 3 percent; on Tuesday it rose to 3.1 percent.
The ASX betting market also correctly had rate increases every month until the end of 2022.
The charts also fluctuate less than forecasts from major banks, as the futures market five months ago predicted a 3.5% peak for March 2023.
In July, when the cash rate was still at 1.35 percent, he predicted that the cash rate in December would exceed 3 percent; on Tuesday it rose to 3.1 percent.
Reserve Bank of Australia Governor Philip Lowe gave an explicit hint on Tuesday that this latest rate hike would be far from the last.
“The board expects to raise interest rates further over the next period, but it is not on a pre-set course,” he said.
Inflation in the year to September rose 7.3 percent, the fastest increase in 32 years.
While it moderated to 6.9 percent in October, that was a monthly figure based on less comprehensive data than the figures for the September quarter.
The Reserve Bank still expects headline inflation, also known as the consumer price index, to peak at 8% this year for the first time since 1990.
This is more than double the RBA’s two to three percent target, and inflation is forecast to stay above its comfort zone until 2025.
Treasurer Jim Chalmers acknowledged that the latest rate hike would be far from the last for the RBA.
“They have signaled that more increases might be needed,” he told ABC Radio.
Two of Australia’s big four banks, Westpac and ANZ, expect the RBA to hike rates a further three times in February, March and May, to an 11-year high of 3.85 percent (file image)