Big banks predict four or five interest rate rises in next six months

PHOTO: Every major bank now expects interest rates to start increasing from June. The last time official interest rates went up was November 2010.CREDIT:PETER RAE

The nation’s four biggest lenders say interest rates will rise at least four times in the six months after the May federal election, adding hundreds of dollars to the mortgage repayments of home buyers amid concern within the Reserve Bank that inflation pressures are growing.

The development puts more pressure on Prime Minister Scott Morrison and Opposition leader Anthony Albanese to convince voters they can manage the economy and cost of living pressures at the upcoming poll.

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Westpac and NAB joined the Commonwealth Bank and ANZ to say the first interest rate rise since November 2010 will occur on June 7. They believe the RBA will use its first post-election meeting to increase the official cash rate from 0.1 per cent to at least 0.25 per cent and then rapidly start to “normalise” the cost of money across the country.

The RBA, which until recently had been expecting to hold the cash rate steady until early 2024, slashed interest rates to deal with the COVID-19 recession. But inflation pressures on top of the tightest jobs market in 50 years have forced the bank to change its messaging about rate movements.

Westpac chief economist Bill Evans said the RBA was now likely to follow the path taken after the global financial crisis when it moved quickly to take rates from “emergency” levels to something more appropriate for a recovering economy.

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He cautioned that the low interest rates currently enjoyed by many Australians meant even a relatively small increase would have a substantial impact on borrowers, especially if rates eventually peaked at 2 per cent.

“This 2 per cent will result in a significantly higher debt servicing ratio for the household sector than in the 2009-10 tightening cycle,” he said. “There will still be considerable sensitivity to the higher rates.”

Mr Evans noted there was a “wave” of people who took out 2 per cent fixed interest rates during the coronavirus pandemic who would roll over to rates of around 5.5 per cent next year and in 2024.