Australia interest rates: Westpac raises interest rate forecast

One of the four major banks has raised its expectations for the rate hike in Australia, which means bad news for many mortgage holders.

One of Australia’s four major banks has revised its expectations for Australian interest rates for the coming months upwards, suggesting higher mortgage payments for already struggling households.

Westpac chief economist Bill Evans now expects final interest rates to come in at 2.6 percent higher than his earlier forecast of 2.37 percent.

It comes from a record low of 0.1 percent – ​​introduced to help the country cope with the pandemic – which has since increased and stands at 0.85 percent.

Earlier this month, Reserve Bank of Australia (RBA) governor Philip Lowe said he expected interest rates to be around 2.5 percent, with more steps in the coming months.

“The resilience of the economy and higher inflation mean that this extraordinary support is no longer needed,” said Mr Lowe.

“The board expects to take further steps in the process of normalizing monetary conditions in Australia in the coming months.”

ANZ also expects significant rate hikes in the coming months, bearing in mind Mr Lowe’s “hawkish rhetoric” supporting a 50 basis point (bps) hike in July and a likely cash rate hike in any month through November.

More than half of Australian mortgages are floating-rate, and many more are expected to be around when their fixed-rate loans mature at the end of 2023.

“Effectively 90 percent of mortgage borrowers are directly exposed to movements in RBA cash rates over the next year and a half,” said Mr. Evans.

Westpac’s new position on local spot rates follows a revised forecast that predicts a series of aggressive rate hikes in the US to 3.375 percent.

“That cycle for the remainder of 2022 will see increases of 75 bps in July, 50 bps in September, 25 bps in November and 25 bps in December,” Evans said.

“This shift to higher global rates has also resulted in us raising our final rate for the RBA’s tightening cycle.”

He added that the more aggressive approach was expected to bring the US economy to a standstill, with the risk of a mild recession in the second half of 2023, followed by a drop in interest rates to 2.125 percent through 2024.

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