Big banks warn of four rate rises this year as Scott Morrison bids for re-election

Treasurer Josh Frydenberg has weighed in on a major issue that is on the horizon for millions of Australians.

Treasurer Josh Frydenberg has praised his government’s cost-of-living measures amid a warning from the big four banks that interest rates could rise four times in the second half of the year.

Families with an average mortgage of $500,000 could soon be paying up to $600 extra a month, but Mr Frydenberg said the measures outlined in last week’s budget – including the $420 extension of the low and middle income tax offset (LMITO) and the halving of the fuel excise – would help lighten the load.

In acknowledging the decisions about interest rates were matters independent of government, Mr Frydenberg sought to look to the past to answer a question about the future.

“With the cash rate at the historic low of 10 points, it’s actually saving a family some $600 less than what they would have paid under Labor,” Mr Frydenberg said

With the federal election to be called within days, Mr Frydenberg took aim at Labor’s “unnecessary spending” that would put upward pressure on interest rates compared with the downward assistance the fuel excise was offering.

“Our focus is on ensuring people get cost-of-living relief but also ensuring we spend in a responsible way so as to not put unnecessary upward pressure on cost of living,” he said.

“We’ve been providing tax relief since we came into government, and tax relief will continue to flow from here on.”

Mr Frydenberg also “made clear” the $420 LMITO top up would only occur this year.

Federal Treasurer Josh Frydenberg says the government’s cost-of-living measures would help should interest rates rise four times this year. Picture: NCA NewsWire / Nicki Connolly

Earlier, Scott Morrison said cost-of-living pressures were going on “all around the world” after Australia’s big four banks warned interest rates could rise four times in the second half of the year.

The surprise decision by the Reserve Bank of Australia earlier this week to abandon its “patient” approach to monetary policy – brought about by the Covid-19 pandemic – has prompted a revision of forecasts.

Inflation pressures are to blame, but the burden is on the Prime Minister and Opposition Leader Anthony Albanese to convince voters they can keep cost-of-living pressures under control ahead of the federal election.

Westpac and NAB, alongside the Commonwealth Bank and ANZ, are now predicting the first interest rate rise since November 2010 will occur on June 7, two months ahead of schedule.

They expect the official cash rate to increase from 0.1 per cent to at least 0.25 per cent before peaking at 2 per cent next year in a move that could add hundreds of dollars to mortgage repayments each month.

With interest rates now poised to rise multiple times in the second half of the year, the pressure is on both sides of politics to find a way to ease mounting cost-of-living burdens. Picture: NCA NewsWire / David Swift

It had previously been expected the RBA would hold the cash rate at the record low until 2024, but inflation pressures in part caused by the war in Ukraine and low unemployment has changed the situation.

With the election to be called any day now, Mr Morrison said “strong financial management” in the years ahead was going to be key.

“There are lots of pressures on the Australian economy … That’s going on all around the world,” Mr Morrison told 3AW radio on Friday.

“That’s why strong financial management in the years ahead is going to mean more than anything, and we’ve had a steady hand on those issues. “

Earlier, Defence Minister Peter Dutton acknowledged the looming impact on people’s mortgages and used it as a pitch to re-elect the Coalition.

“It’s the reason you don’t want to risk going to a Labor government. Labor is a disaster, they’re tax poor,” Mr Dutton told the Nine Network.

“We’ve seen (shadow treasurer) Jim Chalmers say they will remove the limit on the amount of debt they can go into, which is exactly what they did in the Rudd-Gillard years – interest rates are higher in that environment and that’s a given.

“We’ve turned the budget around to be in a better position than anyone’s been able to do in the last 70 years … we have the lowest unemployment rates since the 1970s, and that puts us in the best possible position.

“You don’t want to risk a change of government in that circumstance.”

Peter Dutton said against the background of a changing monetary policy, Australians couldn’t risk a change of government. Picture: NCA NewsWire / Dan Peled

Deputy Labor leader Richard Marles acknowledged the “pretty difficult situation” Australia was facing but said wage growth was an imperative measure to balance things out.

“We’ve had record low wage growth in Australia, because under this government productivity has fallen through the floor,” Mr Marles responded.

“At the end of the day, we have to get wages going. This government has no idea how to do that, but an Albanese Labor government will make this its first priority.”

Westpac chief economist Bill Evans had earlier warned the RBA was likely to follow the path taken in the wake of the global financial crisis, moving quickly from “emergency” level rates to something more appropriate for an economy in recovery.

Westpac says the RBA is moving quickly from the protection measures it instilled during the pandemic. Picture: NCA NewsWire / David Swift

Mr Evans warned the cash rate would peak at 2 per cent by June 2023.

Coincidentally, Mr Evans said the unemployment rate was now predicted to reach 3.25 per cent by the end of the year.

“That much tighter labour market in turn points to a stronger lift in wages growth in 2023, with a peak of four per cent now expected compared to our previous peak of 3.5 per cent,” he said.

“Interestingly, the shift by the RBA board from a ‘patient’ to a more proactive approach to monetary policy is in the context of an election campaign that will be fought through most of April and the first half of May, indicating the RBA is willing to risk political controversy, particularly around any discussion of the role of the federal budget in changing the board’s stance.”

Originally published as Big banks warn of four rate rises this year as Scott Morrison bids for re-election