The Commonwealth Bank of Australia (CBA) has revised its interest rate predictions, now expecting a 0.5 per cent hike in both August and September.
CBA head of Australian economics Gareth Aird said the bank is then expecting rates to remain steady through the first half of next year, followed by a 0.5 per cent cut in the second half.
Also read: RBA warning: Inflation and rates to surge
“We have revised our central scenario for the Reserve Bank of Australia (RBA). We had previously expected the RBA to take the cash rate to 2.10 per cent by November,” Aird said.
“But given the recent strength of the labour market data, coupled with a largely co-ordinated response of central banks globally to raise policy rates quickly, we have amended our profile.”
Aird said if the RBA were to follow this forecast it would be an “incredible pace of tightening”.
“The starting point was a cash rate of just 0.10 per cent and household debt sits at a record high as a share of income,” he said.
“The impact on households with a mortgage will be very significant given the percentage change in the mortgage rate will be incredibly large.”
Aird said some households with a home loan will be protected, at least initially, if they are on a fixed rate - but that too will come to an end.
“The majority of home borrowers are on floating rate loans and the interest cost on their debt will go up very quickly,” Aird said.
“Our updated forecast profile is of course based on what we think the RBA will deliver and not what we believe the RBA should do.”
Already mortgage holders are struggling to keep up with the pace of interest rate hikes.
Analysis from RateCity.com.au found a borrower with a $500,000 mortgage in May, with 25 years remaining, had seen repayments rise by an estimated $333 in total across the three hikes we have already seen this year.
Someone with $1 million remaining on their loan has seen monthly repayments rise by around $665 a month.
“The RBA’s rapid-fire rate hikes have rattled consumer sentiment for months,” RateCity research director Sally Tindall said.
“Part of this could be because homeowners have only just started paying extra on their mortgage as a result of the first hike back in May.”