'It will be breaking point for some families': Three big four banks predict double-dose of interest rate pain for Aussies
Aussie borrowers have been warned to brace for a double-dose of interest rate pain as market instability fueled by the volatile war in the Middle East pushed three of the big banks to shift their RBA cash rate predictions.
NAB, Commonwealth Bank and Westpac today both amended their interest rate predictions, now tipping the RBA to increase the official cash rate by 25 basis points when they meet next Tuesday, and again in May.
That would bring the peak cash rate to 4.35 per cent.
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If NAB, CBA and Westpac are correct in their prediction of a back-to-back cash rate increase next Tuesday, mortgage holders with a $600,000 mortgage will be paying an extra $181. Nine
The big banks initially expected the RBA to hold until May, which ANZ is still forecasting.
If NAB, CBA and Westpac are correct, it would mean three back-to-back hikes after the cash rate jumped 25 basis points to 3.85 per cent on February 3.
NAB said new upside pressure on inflation "tips the balance in favour of an additional increase".
"The starting point of robust growth, a too-tight labour market and too-high inflation already supported further tightening," NAB said in a statement today.
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Speculation is rising that the Reserve Bank will increase interest rates next week. Louie Douvis/AFR
"Much will depend on the trajectory of oil prices and the domestic data flow, and we see two-sided risks around our new central case for a 4.35 per cent peak."
Westpac said the effect of higher oil prices on inflation was "large but temporary" but believes the RBA will "nevertheless feel compelled to react".
"There are good arguments for staying on hold until May given the temporary nature of the shock and the possibility of more extreme market instability. A split vote at next week's meeting is possible," Westpac chief economist Luci Elli said.
"Market participants should allow for the possibility that the RBA opts to wait until May, but it is no longer our base case.
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If the RBA were hike rates in March and May after Feburary's increase, borrowers with a $1 million mortgage would be paying an extra $453 every month. Nine
"Similarly, a swift and clear resolution of the war (and fall in oil prices) or a clear and sudden loss of momentum in domestic activity would mean that the expected March hike would not be followed up in May.
"Again, this is not our base case, but we will keep the possibility under review."
Canstar data insights director Sally said a cash rate hike next week was "not a done deal".
"The war in the Middle East has cast a huge cloud of uncertainty over the decision, because while the short-term impact of the conflict will push up prices, particularly fuel, the longer-term damage to the economy and jobs market is not yet clear," she said.
"If the Westpac and NAB forecasts prove accurate, the RBA would deliver three back-to-back rate hikes across February, March and May – a scenario that would add further pressure to already stretched household budgets."
For a borrower with a $600,000 mortgage on a 25-year term, a hike in March would increase their monthly repayments by $91.
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Westpac is one of three banks now predicting a hike on Tuesday. Lisa Maree Williams/Getty Images
If rates were to rise again in May, which all four majors expect, the total increase would be $181 each month.
"These are big numbers and you're combining them with the end of the electricity rebate, rises in private health insurance premiums, rise in petrol prices," Tindall said.
"It will be breaking point for some families if we get those one, two, three, punch hikes."
Tindall encouraged borrowers to "stress-test" their budgets against at least half a percentage point higher.
"For example, if you're now sitting on a rate of 5.75 per cent, test it out at 6.25 per cent – even 6.50 per cent – to see if it stacks up against your budget," Tindall said.
"For borrowers, the key message is to prepare for the possibility of higher rates, even if it's not yet a done deal. Now is the time to make sure your mortgage is competitive."
NAB and Westpac both expect interest rates to begin to regress to neutral levels in the second half of 2027.
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