Westpac delivers a major blow to Aussies with a mortgage in latest forecast: Here’s what you need to know

The Westpac bank now predicts that record high immigration will force governments to spend more money – and delay much-needed interest rate cuts.

A record 547,300 migrants poured into Australia in 2023 – the highest ever in a calendar year.

The Population growth of 2.5 percent was also at the highest level since the early 1950s.

Pat Bustamante, senior economist at Westpac, said this rapid population growth would lead to more government spending – at state and federal levels – leading to more inflationary pressures.

“This is driven by increased spending on the public services needed to serve the larger population, and by investment in infrastructure,” he said.

A record 547,300 migrants poured into Australia in 2023 – the highest ever in a calendar year (pictured are Sydney train commuters)

‘The growing budgetary stimulus will provide additional support.

‘But it increases inflation risks, especially in areas where there are existing capacity constraints, such as the construction sector.

“If concerns about persistent price pressures persist, this could increase the risk that interest rate cuts will be postponed.”

The Reserve Bank left interest rates unchanged this week at a 12-year high of 4.35 percent, but the accompanying statement said government spending, apart from electricity cuts, risked exacerbating inflation.

“Recent budget results may also have an impact on demand, although federal and state energy cuts will temporarily reduce headline inflation,” the report said.

RBA Governor Michele Bullock clumsily dodged a question about government spending at her media conference on Tuesday.

The Reserve Bank left interest rates unchanged this week at a 12-year high of 4.35 percent, but the accompanying statement said government spending, apart from electricity rebates, risked worsening inflation (pictured houses in Oran Park in the far south west of Sydney).

“I think the board’s conversation today was not specifically about budgets, but about the overall context,” she said.

‘I don’t think there is much point in thinking about the Budgets separately.’

Westpac still expects the RBA to cut rates in November, along with the Commonwealth Bank and NAB.

But ANZ changed its forecasts last week to delay the first rate cut until February.

The 3.6 percent inflation rate for the March quarter was still above the Reserve Bank’s target of 2 to 3 percent.

The RBA does not expect inflation to fall within the range until late 2025.