The Reserve Bank of Australia (RBA) has undertaken an aggressive tightening cycle, increasing the cash rate twelve times in just over a year. This has led to concerns from the National Australia Bank (NAB) about a further surge in interest rates, potentially as high as 4.6%.
NAB’s economic analysts predict that the RBA will implement two additional rate hikes of 0.25% each. These increases are expected to occur one in July and another in August, although the exact timing is yet to be confirmed. The predicted rise in interest rates could significantly impact Australians, particularly homeowners.
Sarah Megginson, a money expert at Finder, warns that if the RBA raises the interest rates to the projected 4.6%, Australians could find themselves spending thousands more on their mortgages each month. According to her analysis, Australians with an average loan size of $585,000 are already paying over $15,000 more per year on their mortgage compared to last year. If the projected rate increases occur, this could add an extra $2,300 per year to their mortgage payments.
In the wake of the mounting cost of living, Megginson questions why mortgage holders are disproportionately affected by the burden of record-high inflation while many companies, including banks, continue to report record profits.
However, there is potential relief in sight. NAB forecasts that the RBA will start to reduce interest rates towards the “neutral” level, which is generally considered to be between 2 and 3%, in 2024. This forecast aligns with the predictions of a majority of experts in Finder’s RBA Cash Rate Survey, who anticipate a slow decline in the cash rate beginning between November 2023 and April 2024.
Despite the strain of the current high rates, the anticipated decrease in interest rates in 2024 and 2025 offers hope for the future. Economists predict that this drop will help to alleviate the financial stress many Australians are currently experiencing due to these unprecedented interest rate hikes.