Interest rates

Reserve Bank of Australia: Economists issue divisive note on Reserve Bank of Australia mortgage interest rates. Read the details here

Economists forecast that the Reserve Bank of Australia (RBA) may continue to raise interest rates until they reach 2.5% to 3.5%, which is a big increase from the current rate of 1.85%.

While this undoubtedly portends more discomfort regarding mortgage repayments in the months to come, there appears to be some relief.

Rates could peak towards the lower end of the forecast range due to slower-than-expected US inflation growth and lower oil prices.

Given their high debt levels, Australians may find raising interest rates a particularly effective way to cool the economy and curb inflation.

According to ANZ economists, the cash rate will peak at 3.35% by the end of the year before starting to decline in the second half of 2024. Due to rising interest rates and From the limited borrowing capacity, they expect house prices in capital cities to fall 18% from their peak in March this year before starting to rebound in 2024.

Shane Oliver, chief economist at AMP, disagrees, saying the RBA is already making progress in reducing household demand, making predictions of a peak cash rate of more than 3% unreasonable.

The central bank expects to take further steps to normalize monetary conditions in the coming months, although it is not on a predefined path in the minutes of the RBA board meeting of the August 2nd.

How different central banks are preparing for tapering

Global central banks consider exiting stimulus

Haunted by memories of the last U.S. interest rate hikes, the world’s central banks are laying the groundwork for a transition to life with less global stimulus and with many countries already signaling moves toward exit. With the US Fed publicly committed to keeping interest rates near zero – and no hikes expected until late next year at the earliest – official comments on inflationary pressures could become a chorus in coming months, making the reduction a more concrete prospect and likely heightened volatility in global financial markets.

So, anticipate further rate hikes. The RBA is seeing a tight labor market, an increase in expected wage growth and an impending spike in inflation.

Those with adjustable rate mortgages still face a significant increase in payments, even from Oliver’s more cautious outlook. In addition, borrowers who abandon fixed mortgage rates will suffer.

Canstar forecasts that the average mortgage rate at the start of next month, excluding seed loans and first-time homebuyer loans only, would be 4.73%. However, some lenders are still suffering from the RBA’s rate hike from August.

If upcoming rate increases are fully passed on to mortgage holders, the average variable mortgage rate will rise to 5.48% if the current cash rate of 1.85% peaks at 2.6%. Therefore, according to Canstar data, the monthly payment on a $1 million mortgage would increase to $5,665.

Since the initial cash rate increase in May, monthly repayment increases have increased to $1,460.

The monthly payment would increase to $6,144 if the spot rate reached its maximum of 3.35%.

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