Yahoo Finance CBA, ANZ flag ‘possible’ rate hikes: Mortgage repayments could jump by $500
How high can the Reserve Bank of Australia take the cash rate?
Well, the Commonwealth Bank of Australia (CBA) said some have predicted it going as high as 2.5 per cent.
In a note, CBA’s head of Australian economics, Gareth Aird, said it was “possible” the RBA could take the cash rate higher than anticipated.
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“It is possible, however, that the RBA takes policy into contractionary territory - either intentionally, to put downward pressure on inflation, or inadvertently, if the RBA’s assessment of neutral is higher than ours,” he said.
“Our analysis indicates that a cash rate of 2.50 per cent, i.e. in line with market pricing, is deeply contractionary and would result in mortgage payments - as a share of household disposable income - rising to a record high. Data we use goes back to 1999.”
1.25% cash rate more realistic: CBA
CBA has stated it believes a more likely scenario is the cash rate increasing to 1.25 per cent by the start of next year, which is its official stance.
“We assess 1.25 per cent to be the neutral cash rate and therefore, at this stage, we believe once the cash rate is at that level it is the logical place for the RBA to pause in its tightening cycle,” Aird said.
CBA believes the first hike by the RBA will come in June this year.
What will a hike mean for my mortgage?
ANZ revealed the effects of a 3 per cent cash rate last month, when economists started predicting the worst-case scenario.
ANZ said the market was predicting the cash rate would rise to 2 per cent by the end of 2023 but potentially rise to 3 per cent by the end of 2025.
If these predictions were to come true, the average borrower with a 25-year $500,000 loan today, on the average variable rate of 2.94 per cent would see their repayments rise by $504 a month by the end of next year, according to data from RateCity.
If the cash rate climbed to 3 per cent by the end of 2025 their repayments would rise by approximately $771 a month.
Monthly repayment increases for the average borrower with a $500K loan, based on ANZ’s forecasts
Rate | Repayments |
|---|---|
2.94% | $2,355 |
4.84% | $2,859 |
1.90% | $504 |
Rate | Repayments |
|---|---|
2.94% | $2,355 |
5.84% | $3,127 |
2.90% | $771 |
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