NAB economists now predict the cash rate will peak at 4.1 per cent following RBA Governor Philip Lowe’s strong language about taming inflation last week.
In a note released Tuesday, NAB predicted that there would be three further rate increase of 25 basis points each at the RBA’s March, April and May meetings.
The bank had previously predicted that the cash rate would peak at 3.6 per cent, but Dr Lowe’s hawkish language surrounding future rate rises in his February board meeting statement had led them to change their forecast, the Australian Financial Review reported.
If NAB’s revised prediction plays out it will mean the RBA will have enacted 12 consecutive rate rises, resulting in a total increase of 400 basis points.
NAB group chief economist Alan Oster told the Australian Financial Review that a cash rate of above 4 per cent would have an impact on the broader economy.
“A cash rate peak above 4 per cent will have a significant impact on economic growth, and we expect GDP to be below 1 per cent over both 2023 and 2024 despite the more optimistic near-term outlook,” Mr Oster said.
Mortgage cliff predictions
NAB’s updated forecast came as an economist at accounting firm KPMG warned borrowers coming off fixed-rate loans could face paying an extra $16,500 in mortgage repayments each year.
KPMG Chief Economist Brendan Rynne told the ABC that calculation assumed an average mortgage debt of $600,000 and that borrowers coming off a fixed-rate mortgage average would be paying 2.75 per cent more on their new rate.
“(That) means those households still on fixed rate mortgages will need to pay an additional $16,500 in (after tax) interest payments, once they reset onto a variable rate mortgage – noting of course that variable mortgage holders have already been progressively required to pay higher mortgage interest payments over the past 9 months in line with previous cash rate increases,” he said.
Mr Rynne said that borrowers would be forced to reallocate funds they would otherwise save or spend on other items towards paying the mortgage if the RBA continued pushing the cash rate up.
“A 3 per cent increase in interest rates will mean mortgage holders will need to pay an additional $60 billion in interest payments which otherwise could have been allocated to other forms of spending (or debt reduction),” he said.
Difficult times
Last week ANZ Chief Economist Shayne Elliott that the most recent cash rate rise had resulted in property owners who had purchased at the peak of their borrowing capacity entering “difficult” times.
He said that the most recent increase took these borrowers to the top of the ‘buffer’ test they had been assessed at when taking out their loan.
“The lowest rate we ever gave anyone was 1.94 per cent as a fixed rate,” Mr Elliott told 3AW Radio.
“We assumed rates could go up to 5.25, so we built a buffer which is about where we are now, so that buffer has worked.”
“Up to now people have been managing OK … but it’s really from here on it gets very difficult because we are over that buffer, and it starts to really bite into people’s savings.”
