Big banks predict mortgage repayments to fall by end of year
The major banks are split on what’s next for interest rates, with the potential for more pain. But there’s a surprising prediction for what’s set to happen in 2024.
Homeowners could be set for some welcome relief with forecasts predicting interest rate rises will be paused in April, while three of the four big banks are expecting they will be slashed again from early 2024.
However, ANZ’s forecast would send chills through any homeowner, with the major bank expecting more pain to be heaped on mortgage holders.
It has predicted two more hikes in April and May, saying rates would then stay at a peak of 4.1 per cent until November 2024 as the Reserve Bank of Australia (RBA) attempts to bring inflation down.
Yet, Westpac lowered its forecast that the cash rate would be hiked as high as 4.1 per cent.
Instead, the major bank has predicted interest rates will peak at 3.85 per cent and that the RBA will even put a pause on any rate hikes in April.
Westpac chief economist Bill Evans also maintained that interest rates would start to be cut again from the second quarter of next year between March and May – with four cuts pushed through taking interest rates to 2.85 per cent by the end of next year.
Interest rates have skyrocketed from a record low of 0.1 per cent to 3.6 per cent since last May.
Commonwealth Bank has also backed the forecasts that interest rates have only one more hike to go up to 3.85 per cent in May.
However, CBA head of Australian economics Gareth Aird believes rates will be slashed as early as November due to the economy slowing, unemployment creeping higher and price pressures easing.
Interest rates will slide to 2.85 per cent by the middle of 2024, Mr Aird added.
NAB believes the last rate rise will be pushed through in April but isn’t as optimistic about bigger rate cuts, predicting the cash rate will only fall to 3.1 per cent by the June quarter of next year.
Meanwhile, HSBC chief economist for Australia, NZ & global commodities Paul Bloxham has tipped the RBA to pause its aggressive interest rate hikes next month on the back of consumer spending slowing, inflation having peaked, and the jobs market “starting to loosen”.
Inflation rose 6.8 per cent in the 12 months to February down from the 8.4 per cent peak in December.
Mr Bloxham said the RBA will be looking for a “soft landing” rather than pushing Australia into recession, and new data released recently could support a move to hold interest rates at 3.6 per cent and pause future hikes for months.
“Although some of the data since early March has been fairly strong, such as business conditions surveys and the employment figures, the retail numbers and other consumer spending measures are showing clear signs of a loss of momentum,” he said.
“The monthly consumer price index indicator for February suggests that inflation has peaked and job vacancy figures suggest the jobs market is starting to loosen. Finally, although the unemployment rate is still low, it does appear to be past its trough.
“We think the RBA could justify a pause in its hiking phase on domestic grounds alone, as we think the economy has passed a turning point and is now in a downswing.”
He added the deterioration of the global financial system – with the collapse of banks in the US – alongside the large number of mortgages rolling off fixed rates and the fact all rate increases haven’t hit the economy yet, also backed a pause.
AMP economist Shane Oliver agreed that after 10 rate hikes in a row, it’s time for a pause.
“The RBA has said it will consider a pause at its next meeting, economic data is showing increasing signs of cooling activity, and peaking inflation and banking turmoil has increased the risk of a global recession,” he said.
“So while it’s a close call, on balance we think the RBA will pause in April.”
Food prices
Despite the overall drop in the cost of living, food and non-alcoholic beverage inflation was still 8.2 per cent higher year-on-year.
Experts believe food prices will not be cheaper by the end of the year, due to the persistence of supply chain problems and an uncertain global economic environment.
Finder’s head of consumer research Graham Cooke said the cost of living is putting an upward pressure on food prices, with many Australians having to forgo certain items to keep afloat.
“Food prices have been in flux due mainly to global cost increases, supply chain issues and weather events,” he said.
“Over 70 per cent of Aussies have had to reduce spending on food in some form – but with the causes of inflation easing, we may see an improvement later this year.”
Saul Eslake from Corinna Economic Advisory said while prices of some items probably will decline over the 12 months to next January, there’s no reason to think that the overall cost of groceries at supermarkets will drop over this period.
Case for interest rate cut ‘getting stronger’
The Australian economy is growing at its slowest pace since the early 1990s, and a key group claims the RBA is focusing on the wrong thing to fix it.
RBA’s big call on 2024 rate cut
The RBA’s deputy governor Andrew Hauser has made a big call on the likelihood of a 2024 rate cut for Aussies.
‘In free fall’: Shock RBA prediction
A number of telltale signs have emerged indicating the Reserve Bank is planning a major, surprising pivot within a few short weeks.