Yahoo Finance Mortgage holders warned to brace for interest rate rise: ‘RBA strategy not working’
Judo Bank chief economic adviser Warren Hogan believes there will be three 0.25 point rises this year alone.
Homeowners have been warned the Reserve Bank of Australia (RBA) may lift interest rates three times this year. Consumer price index (CPI) data for the first quarter of 2024 was released this week and it dashed hopes of a rate cut for this year.
Inflation has dropped since the December quarter, from 4.1 per cent to 3.6 per cent. Figures showed there were still lingering price pressures on the economy, especially for services such as education, health, rents and insurance.
Many have been crossing their fingers for mortgage relief, but Judo Bank chief economic adviser Warren Hogan told the Australian Financial Review the road ahead could be more painful before it gets better.
Have been struggling to afford your mortgage? Email stew.perrie@yahooinc.com
Hogan is predicting the RBA will have three 0.25 point increases this year, which would take the cash rate to 5.1 per cent.
“Everything points to the fact that 4.35 per cent isn’t the right level for the cash rate," he said.
“The RBA’s strategy this cycle doesn’t seem to be working. They were hoping we could do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages."
RELATED
Interest rates cuts: 'Crying' Aussies trapped in backseat of RBA's car - so are we there yet
Borrowers warned against home loan move that will 'block' RBA interest rate cuts
Answer to faster interest rate cuts is right under RBA’s nose: ‘Hidden unemployed’
Hogan believes the RBA needs to raise the cash rate above 5 per cent, like the United Kingdom, United States and New Zealand, and reckons the rises will come in the August, September and November meetings.
But his prediction hasn't been swayed by the March quarterly CPI figures, and is instead steeped in the "elevated number of job vacancies". Hogan is concerned businesses haven't been able to keep up with demand and are struggling to find reliable labour.
According to Australian Bureau of Statistics figures released this month, the unemployment rate rose to 3.8 per cent in March, up from 3.7 per cent in February. While it was higher than the previous month, it was 0.1 per cent lower than forecasts.
These figures added to expectations that the RBA wouldn't move towards a rate cut anytime soon.
“While inflation in Australia is expected to continue falling towards the target band and economic growth has slowed materially, a more balanced labour market with less pressure on wages growth will be needed for the RBA to consider lowering interest rates,” KPMG economist Michael Malakellis said.
The hotter-than-expected CPI figures prompted Westpac to push out its forecast for interest rate easing from September until November, bringing the bank's economists in line with two of the big four, ANZ and NAB.
Commonwealth Bank still has September pencilled in for now but said the risks are skewed towards a November start.
Other forecasters are not expecting easing to begin until next year and there is also a diversity of views on how many cuts will be delivered - variables RateCity research director Sally Tindall said will impact borrowers hugely.
- with AAP
Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.
