What this means for you
The Reserve Bank of Australia (RBA) is expected to raise interest rates, with many major banks predicting this will happen in June this year.
But, Westpac chief economist Bill Evans told ABC Radio that the bank expects the RBA to rise to as much as 0.4%.
It would be a major rate hike for the central bank which would normally only move 0.25% at a time.
“There’s a lot of speculation that they’ll be moving on May 3, but I think that’s really been ruled out by the advice we’ve seen from the Reserve Bank about wanting to see the data over the course of the next few months,” Evans said.
“We expected them to increase by only 0.15 [percentage points] but now, with this much stronger inflation environment, a much stronger labor market, I think it’s necessary to move faster than that.
“So a first shot of 0.4 [percentage points]then back to 0.25 [percentage point] moves in most months by the end of the year. »
RBA could rise next week
However, not all economists agree that the bank will grow with such a large move, but rather start smaller, earlier.
Betashares chief economist David Bassanese said he thinks the RBA could rise as early as next week at the bank’s May meeting.
“Given increased global supply chain bottleneck issues and more aggressive rate hikes expected in the US, I now believe the RBA should, and likely will, raise interest rates the next week by 15 basis points. [bps] — the case for the upside is so obvious that he doesn’t need to feel bound by next month’s payroll report,” Bassanese said.
“Indeed, while inflationary pressures are building in Australia, they remain less acute than in the US – therefore, we need not risk disrupting economic sentiment with a 40 basis point move” shock and awe “next month.”
Bassanese said a small rate hike at the May meeting next week would allow for a more gradual increase and be softer for Australians to absorb.
“Overall, I think the RBA should and will conclude that it makes more sense to start slow with 15bps next week after the CPI, followed by a traditional 25bps move in June. “, did he declare.
“Indeed, the only real argument for delaying now is the current federal election – as was last the case in 2007, I think this is another good opportunity for the RBA to once again demonstrate its independence. “
What a rate hike will mean for you
There is no doubt that banks will pass on higher interest rates to customers and mortgage holders.
Canstar’s analysis found that if the cash rate hit 1% this year and lenders fully passed on the hike, the average floating rate would rise from 2.99% to 3.89%.
“This would see monthly repayments for the national median home value of $805,621 increase by $322 per month to $3,036, costing borrowers nearly $4,000 more per year and more than $116,000 in interest on the length of their loan,” Canstar Group Executive, Financial Services, Steve Mickenbecker said.
Those living in Sydney would feel the burn the most.
The average house price in Sydney is $1,403,154. If a homebuyer put down a 20% down payment on a home of that value, their loan would be $1,122,523.
The cash rate hitting 1%, up from 0.1% previously, would mean a $561 increase in monthly repayments — or an additional $202,178 in interest charges on a 30-year loan.
In Melbourne, the average home value is $999,037. The loan amount would be $799,230 with a 20% deposit.
Monthly repayments could increase by $400 – adding $143,949 in interest over 30 years.
In Brisbane, the average house price is $856,731, and based on the same calculations made above, monthly repayments could increase by $343.
This would see interest added to the 30-year loan of $123,444.
The average price of a house in Adelaide is $658,446 and on a loan amount of $526,757 a rate increase could lead to an increase in repayments of $264 per month and add $94,874 in interest payments over the term of the loan.
In Hobart, the average price of a home is $791,587 and based on that, a rate hike could lead to an increase in repayments of $317 per month. This would add $114,058 in interest charges over 30 years.
The average price of a house in Perth is $568,108, and a house of that value could see its monthly repayments increase by $227 and add $81,858 in interest charges.
In Canberra, the average house price is $1,055,812, and with a loan amount of $844,650, an interest rate hike could add another $422 to monthly repayments.
This would add $152,130 in interest payments over 30 years.
In Darwin, the average home price is $568,647. A cash rate of 1% could increase monthly repayments by $228 and add $82,079 in interest charges over 30 years.
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