Economists predict interest rates to rise every month until Christmas

With the RBA almost certain to increase the cash rate on Tuesday afternoon, some economists are predicting it could be a regular monthly occurrence.

All eyes are today focused on the Reserve Bank of Australia, with it expected to increase interest rates on Tuesday afternoon – and some economists are predicting there could be rate rises every month until Christmas.

The RBA hasn’t raised the interest rate since November 2010 and the current rate is a record low of 0.1 per cent.

Three of the big four banks – ANZ, NAB and Westpac – have tipped interest rates to increase to 0.25 per cent in May, with Commonwealth Bank predicting the RBA will hold off until after the federal election with a June 0.15 rate hike. Some experts have predicted the interest rate could even reach 2.5 per cent by the end of the year.

Speaking to The Daily Telegraph, senior economist at Nomura Australia and rate strategist Andrew Ticehurst believes the interest rate will be increased monthly until December, where it could hit 2 per cent by Christmas.

“I have a mortgage too, so I’m going to feel it,” he said.

Stream more finance news live & on demand with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends 31 October, 2022 >

One economist believes interest rates will increase monthly up until Christmas. Picture: iStock

Although it’s believed the RBA would have preferred to hold rates until after the election, Australia’s surging cost of living and inflation numbers have made an interest rate increase almost certain.

International factors like supply chain disruptions due to China’s lockdown and Russia’s invasion into Ukraine have also increased fears of a prolonged inflation hike.

But it has been the latest inflation figures that have made a rate increase look like a certainty. The latest Consumer Price Index (CPI) released last week from the Australian Bureau of Statistics (ABS) revealed the CPI rose 2.1 per cent in the March 2022 quarter, and 5.1 per cent annually. This was the largest quarterly and annual rise since the introduction of the goods and services tax (GST) in 2000.

AMP Capital chief economist Shane Oliver said that the RBA would be “accused of being interfered with politically” if it was to maintain the cash rate.

Once this is increased, it is likely the banks will pass on the full amount of the rate hike, Mr Oliver said.

“Whatever the RBA does, the bank’s standard variable amounts will likely go up by the same amount,” he previously told news.com.au.

The RBA is set to make the announcement official at 2.30pm on Tuesday, May 3. Picture: NCA NewsWire/Joel Carrett

“I think within a few days most customers will be getting a letter from their bank about a rate rise.”

If banks were to pass on the rate rise and increase the average variable interest rate from 3.5 to 3.65, repayments on a principal and interest loan of $500,000 with 25 years remaining would increase by $41 a month (to $2544 a month), according to Mozo’s online calculator.

That amount would increase by $68 a month if there was a 0.25 per cent increase, $136 with a 0.5 per cent increase, and $567 if there was a 2 per cent increase.