Mortgage

Westpac forecasts RBA rate rise by August, mortgage borrowers to face $103 monthly hit

A bank poster says "lock it in baby" advertising a 1.89pc fixed interest rate.
Written by Publishing Team

Westpac now expects the Reserve Bank to start raising official rates in August, half a year earlier than previously thought.

The bank’s economics team — led by respected veteran chief economist Bill Evans — is posting a modest 0.15 percentage point increase in the monetary exchange rate in August, followed by another 0.25 percentage point increase in October.

Financial comparison site RateCity said these two steps will add $103 per month to the interest payments on a typical $500,000 mortgage.

Westpac is anticipating the earlier move because it believes the RBA has been too conservative in its expectations on unemployment, wages and inflation.

By the August meeting, Westpac expects the Reserve Bank’s preferred measures of consumer prices to have met, or exceeded, the midpoint of the 2-3 percent target range for three consecutive quarters.

The next reading of inflation – Consumer Price Index for the December quarter – will be released by the Australian Bureau of Statistics (ABS) next Tuesday.

Westpac economists also expect annual wage growth to reach 3 percent by the end of June as the labor shortage moves to larger wage increases from employers to attract and retain employees.

The shortage of available workers was highlighted by data released today from the ABS office – shortly after the publication of Westpac’s new forecast – which showed the unemployment rate at 4.2 percent in December, the lowest level since August 2008.

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