Judo Bank now predicts the Reserve Bank will raise interest rates three times in 2024 to levels not seen in 16 years, adding $300 a month to average mortgage repayments.
The bank’s chief economic adviser, Warren Hogan, expects the cash interest rate to rise to 5.1 percent by Christmas, up from its 12-year high of 4.35 percent.
Rate hikes in August, September and November this year would see the Reserve Bank of Australia’s policy rate rise to a level last seen in December 2008, during the global financial crisis.
A borrower with an average mortgage of $600,000 would see their monthly repayments increase by an additional $300, following the most aggressive rate hike in a generation.
Judo Bank now predicts the Reserve Bank will raise interest rates three times in 2024 (pictured, Reserve Bank of Australia Governor Michele Bullock)
Until Wednesday, banks like the Commonwealth Bank were forecasting three rate cuts in 2024, but higher-than-expected inflation data released on Wednesday prompted economists to reassess their forecasts.
While annual headline inflation in the March quarter fell to 3.6 percent, an underlying measure of inflation showed prices continuing to rise by 4.4 percent.
This is well above the Reserve Bank’s target of 2 to 3 percent.
Mr Hogan, a former ANZ chief economist, said inflation was higher than the Reserve Bank expected, despite most Australian borrowers having a variable rate mortgage.
“They were hoping we could do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages,” he told the Australian Financial Review.
“Now we just need to reach the level (of cash rates) that other countries are experiencing, at 5 percent.”
Even with three rate hikes, an Australian spot rate of 5.1 percent would still be lower than New Zealand’s 5.5 percent, Canada’s 5 percent and the U.S. level of 5.25 to 5.5 percent.
Australian borrowers have already endured 13 rate hikes in 18 months, between May 2022 and November 2023, and these were already the most aggressive increases since 1989.
Mr Hogan is one of the few economists still predicting further rate rises and was the only one surveyed by the AFR to predict the RBA cash rate would hit 4.35 per cent.
In November, a month before the Commonwealth Bank updated its forecast predicting six rate cuts in 2024 and 2025, former Reserve Bank board member Warwick McKibbin forecast three more rate rises.
Three additional rate hikes mean a borrower with an average mortgage of $600,000 would see their monthly repayments increase by another $303 to $4,171, up from $3,868.
A borrower with an average mortgage of $600,000 would see their monthly repayments increase by an extra $300, following the most aggressive rate rise in a generation (pictured: an auction in Melbourne).
This would come as the Commonwealth Bank variable rate rose slightly to 7.44 per cent, up 75 basis points from the current 6.69 per cent for a borrower with a 20 per cent mortgage deposit. hundred.
The 30-day interbank futures market has already ruled out any rate cut in 2024, but Westpac is now forecasting a delayed rate cut in November, compared to September.
Higher-than-expected inflation has also led to a rise in government bond yields, suggesting that financial markets are gradually pricing in the prospect of a possible rate hike in 2024.
Inflation is rising faster than expected while unemployment remains below 4 percent, having recently fallen to its lowest level in almost 50 years.
“The RBA wants to retain the employment gains from the pandemic… which means it is trying to get rid of inflation without net job losses,” Mr Hogan said.
“It’s good, but we still create jobs.
“It seems like we’re straying from the narrow path and it’s not going as planned.”
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