Interest rates

How high will interest rates go?

According to the ABC, a rise of more than 2.5% – in line with financial market prices – would be “deeply restrictive” for the economy and lead to a record increase in mortgage payments as a share of household disposable income. .

AMP Chief Economist Shane Oliver thinks interest rates will hit a “short-term high” at 1.5% next year.

“At this point, I think we will see a fairly significant pullback in house prices and hopefully a lot of the current supply constraints will have started to ease, which will reduce the pressure on the inflation,” he said. Dr Oliver thinks the rate hikes expected over the next 18 months could even be followed by a modest rate cut in 2024.

But, as usual, there is a wide range of opinions among forecasters on the future of interest rates. When the recent Sydney Morning Herald / Age The Scope survey asked 20 economists from business and academia where the official exchange rate would peak. Responses ranged from 1.5 percentage points over the next 18 months to a sharp increase of 8 percentage points over five years.

Aird said government spending decisions, including Tuesday’s federal budget, will play a big role in determining the extent of interest rate hikes. Additional government spending could fuel consumer demand and put additional upward pressure on inflation, which, in turn, could force the Reserve Bank to raise rates more than it otherwise would have. .

“A looser fiscal policy than we currently expect increases the likelihood that the RBA will drive the cash rate to a contraction level,” Aird said.

There is always a chance that investors and forecasters are off target. Earlier this month Reserve Bank Governor Philip Lowe highlighted the high level of economic uncertainty at present, including the continuing effects of COVID-19 and the war in Ukraine which poses “a major new risk to the Mondial economy”.