Banking giants reveal horror interest rate rise prediction

Aussies are still reeling from yesterday’s “super-sized” rate rise – but our major banks are now certain things will get much worse within weeks.

Yesterday’s shock interest rate rise sent shockwaves across the country – but according to our big four banks, another massive hike is just weeks away.

On Tuesday, Australia copped a “super-sized” rate rise when the Reserve Bank announced the official cash rate would jump from 0.35 per cent to 0.85 per cent in a bid to rein in soaring inflation.

The move was widely described as “super-sized” because an increase of 50 basis points is double the usual 25 basis point increments the RBA traditionally tends to prefer.

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The big four are expecting another double rate rise. Picture: NCA Newswire

Before the bombshell announcement, the big four banks were divided over how the RBA would respond to the nation’s economic challenges, with CBA and NAB predicting a 25 basis point hike while ANZ and Westpac forecasted a 40 basis point increase.

But all were proved wrong, with scores of Australia’s most prominent finance experts also failing to predict the huge rate rise.

However, not only is it a certainty that rates will continue rising in the months ahead, but our banking juggernauts are now convinced more double rate rises are coming soon.

In fact, updated cash rate forecasts from CBA and Westpac economists now predict the RBA will hike official rates to 1.35 per cent when they next meet on July 5, while NAB and ANZ believe there will be another double hike within the next two months.

According to CBA, the cash rate could hit 2.10 per cent by November this year, while Westpac agrees it will reach 2.10 per cent by the end of 2022 and 2.35 per cent by February 2023.

Meanwhile, NAB expects interest rates to reach 2 per cent by the end of this year, and ANZ sees up to two more hikes on the horizon in 2022.

Analysis from RateCity.com.au shows that if the cash rate hits 2.10 per cent by the end of this year, someone with a $500,000 mortgage today could see their monthly repayments rise by $542 in total.

For someone with a $1 million mortgage, repayments could soar by a total of $1083.

More pain is on the horizon for mortgage holders. Picture: iStock

RateCity.com.au research director Sally Tindall said June’s double hike was “unfortunately just a taste of what’s to come”.

“The RBA wants to get the inflation genie back in the bottle and it’s prepared to do what it takes to get the job done, and quickly,” she said.

“While many borrowers have been preparing themselves for rising rates, they may not have expected the RBA would go this hard and fast.

“If you don’t think you can keep up with hikes of this magnitude, take action now. Start making cuts to your budget and consider refinancing to a lower rate while you can.”

Ms Tindall said in just a few months’ time, some Aussies might even discover they can’t refinance their mortgage because they don’t pass the banks’ serviceability tests on the higher rates.

Experts say now is the time to act. Picture: iStock

“Petrol prices are once again through the roof, despite the cut to the fuel excise. Grocery bills are ballooning and energy is set to spike. Families are starting to feel the heat from all angles,” she continued.

“Now is the time to take stock, make some budget cuts, if needed, and if you think you are going to default on any bill put your hand up and ask for help.

“If you are in severe financial hardship there are loans and grants that can provide some relief.”

Ms Tindall suggested contacting Centrelink to inquire about the crisis payment, while Good Shepherd might also be able to provide you with a no interest loan.

The national debt helpline is another good resource, and can be reached on 1800 007 007.

RBA ‘caught off guard’

In a statement on Wednesday, IG Markets analyst Hebe Chen noted the RBA’s decision to double down on rising inflation with a “jumbo-sized” 50 basis point rate rise was based on the fact inflation “is higher than earlier expected”.

“In May’s statement, the RBA said, ‘Inflation is high and picked up more than expected in the March quarter of 2022.’ In other words, the pace that which inflation grows is catching our central bank off guard and that may explain why both the ASX and Australian currency were tumbling yesterday,” Ms Chen said.

Reserve Bank of Australia governor Philip Lowe has warned that interest rates will keep on rising. Britta Campion/The Australian

“What frets the market most is not just an unexpected figure, but how long this battle with inflation will last if our central bank is yet to catch up.

“According to RBA’s statement, Australia’s fight with inflation is seemly turning into a new round: while the global factors are yet to be eased, the domestic drivers are on the rise.

“The futures market is implying a massive upgrade to the interest rate outlook from 2 per cent to over 3 per cent by December.”