Westpac warns customers of super-sized interest rate hikes


Australians with a typical $600,000 loan could be paying $125 extra on their mortgage by June as high inflation forces the Reserve Bank to act after the election.

Pricey petrol and Chinese Covid restrictions are making goods much more expensive, and pushing inflation to levels unseen in almost 14 years.

Official consumer price index data for the March quarter is due out on Wednesday with Westpac expecting a high headline inflation rate of 4.9 per cent.

The banking giant’s chief economist Bill Evans said the highest inflation since the September quarter of 2008 was likely to see the Reserve Bank of Australia hike the cash rate by 0.4 percentage points in June.

This bigger 40 basis point increase would see the cash rate rise from a record-low of 0.1 per cent to 0.5 per cent, as the RBA raised rates for the first time since 2010.

This would also be much larger than the usual increase of 25 basis points, or 0.25 percentage points. 

‘A possibility might be for a more cautious 25 basis point lift in June to be followed by the 40 basis point move in July,’ Mr Evans said.

‘However, we anticipate that market and media expectations will shift towards a 40 basis point move over the next six weeks.’

Australians with a typical $600,000 loan could be paying $125 extra on their mortgage repayments by June as high inflation forces the Reserve Bank to act (pictured is a stock image of a new home borrower unpacking boxes)

A borrower with a typical $600,000 loan – on a low 2.29 per cent variable rate – would see their monthly repayments rise to $2,431 from $2,306 should their bank pass on the RBA increase in full, taking their variable rate to 2.69 per cent.

The big banks are all expecting the RBA to move in June, instead of next month ahead of the May 21 election, which would mark the first rate rise since November 2010.

New Zealand and Canada have this month both raised their cash rates by 50 basis points, as the supply chain crisis and Covid restrictions cause global inflationary problems. 

Last year’s headline inflation rate of 3.5 per cent, as measured by the Australian Bureau of Statistics, was already well above the RBA’s 2 to 3 per cent target.

Since the December quarter figures, Russia’s invasion of Ukraine had pushed average Australian petrol prices above $2 a litre for the first time ever.

This saw the federal government in the March 29 budget halve the fuel excise for six months to 22.1 cents a litre.

While national petrol prices are now back to $1.70 a litre, Westpac is forecasting a 10.9 per cent increase in fuel costs in the March quarter alone.

In some capital cities, however, pump prices are back to $1.90 a litre. 

Official inflation data for the March quarter is due out on Wednesday with Westpac expecting a high headline inflation rate of 4.9 per cent. Westpac chief economist Bill Evans said the highest inflation since the September quarter of 2008 was likely to see the Reserve Bank of Australia hike the cash rate by 0.4 percentage points in June (pictured is a Melbourne auction at Glen Iris)

Official inflation data for the March quarter is due out on Wednesday with Westpac expecting a high headline inflation rate of 4.9 per cent. Westpac chief economist Bill Evans said the highest inflation since the September quarter of 2008 was likely to see the Reserve Bank of Australia hike the cash rate by 0.4 percentage points in June (pictured is a Melbourne auction at Glen Iris)

Sydney and Melbourne house prices slip as other cities grow

SYDNEY: Down 0.1 per cent in March but up 20.6 per cent over the year to $1,403,154

MELBOURNE: Down 0.2 per cent in March but up 11.9 per cent annually to $999,037

BRISBANE: Up 2.1 per cent in March, up 32.1 per cent annually to $856,731

ADELAIDE: Up 2 per cent in March, up 28.7 per cent annually to $658,446

PERTH: Up 1 per cent in March, up 7.2 per cent annually to $568,108

HOBART: Up 0.3 per cent in March, up 21.9 per cent annually to $791,587

DARWIN: Up 0.7 per cent in March, up 7 per cent annually to $569,647

CANBERRA: Up 0.8 per cent in March, up 22.4 per cent annually to $1,055,812

Source: CoreLogic median house price data for March 2022 

CommSec chief economist Craig James said higher petrol prices and Covid restrictions in China would see headline inflation climb by 4.3 per cent annually in the March quarter.

‘Higher global oil prices and the ending of discounting cycles in Aussie capital cities combined to push pump prices to near $1.80-1.90 a litre last week,’ he said.  

‘There are also worries about global energy demand given the ongoing Covid lockdowns in China.’

Heavy rains have also disrupted harvests with Westpac predicting a 6.6 per cent quarterly surge in fruit and vegetable prices.

Economist Saul Eslake, the founder of Corinna Economic Advisory, said the RBA would be likely to raise interest rates in early May if inflation was particularly high.

‘What might make them raise rates in May is the March quarter CPI,’ he told Daily Mail Australia.

‘It would be difficult, I think, for the Reserve Bank not to raise rates if that’s the evidence they have.’

Mr Eslake said delaying a rate rise until June, to avoid acting just two weeks out from the May 21 election, could mean a 0.4 percentage point increase later.

‘Either they raise rates in May in response to the March quarter CPI or if they don’t, they may be accused by some people – I’m not going to be one of them – of being shy because of the election,’ he said.

Reserve Bank Governor Philip Lowe last year repeatedly vowed to keep the cash rate at a record-low of 0.1 per cent until 2024 ‘at the earliest’.

But the RBA in the minutes of its April meeting predicted higher petrol, food and commodity prices ‘would result in a further lift in inflation over coming quarters’.

CommSec chief economist Craig James said higher petrol prices and Covid restrictions in China would see headline inflation climb by 4.3 per cent annually in the March quarter (pictured is a Sydney motorist filling up)

CommSec chief economist Craig James said higher petrol prices and Covid restrictions in China would see headline inflation climb by 4.3 per cent annually in the March quarter (pictured is a Sydney motorist filling up)

Australia’s jobless rate of 3.95 per cent in March was the lowest since September 1974, with economists expecting a tight labour market to fuel wage pressures. 

National home prices in the year to March surged by 18.2 per cent to  $738,975, CoreLogic data showed.

A borrower with a 20 per cent deposit would owe $591,180.

Ratings agency Fitch Ratings on Tuesday said climbing property prices were an issue as Australians took on more debt and entered mortgage stress territory.

‘House price growth accelerated through 2021, which could pose risks in the medium term if fuelled by credit growth that results in a significant rise in household leverage,’ it said.

Australia’s household debt to disposable income ratio, after tax, at the end of 2021 stood at 186 per cent, which was higher than the 180 per cent level of late 2020.

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