RBA says 2022 cash rate hike is 'plausible'

author-avatar By
on March 09, 2022 Fact Checked
RBA says 2022 cash rate hike is 'plausible'

The Reserve Bank has subtly moved away from its insistent 2024 timeline of a cash rate hike.

In a keynote address, RBA Governor Phillip Lowe said that with the Term Funding Facility (TFF) coming to an end, the RBA's main focus is now on the level of the cash rate.

The RBA has previously maintained that the cash rate will not rise until inflation and wage growth are 'sustainably' within the 2 to 3% target range, but softened its steadfastness on this not happening until 2024.

Though no real timeline has been given, citing the uncertain times which have made forecasting more difficult than usual, Dr Lowe said that it's 'plausible' that the cash rate will increase later this year.

"The recent lift in inflation has brought us closer to the point where inflation is sustainably in the target range," Dr Lowe said.

"So too have recent global developments. But we are not yet at that point.

"In underlying terms, inflation has just reached the midpoint of the target band for the first time in over seven years."

However, he points out that this comes at a time of 'very large' supply chain and distribution disruptions, as well as aggregate wage growth being no higher than it was before the pandemic.

"In these circumstances, we have scope to wait and assess incoming information and see how some of the uncertainties are resolved," Dr Lowe said.

"We can be patient in a way that countries with substantially higher rates of inflation cannot."


Dr Lowe points to US inflation, which increased by 7.5% over the year to January, as well as inflation in the UK, Germany, Canada and New Zealand being at its highest in decades.

Comparatively, headline inflation in Australia is 3.5% - less than half the rate of the US - while underlying inflation is running at 2.6%.

Rising inflation in Australia can be seen in the cost of goods going up, such as petrol prices nearing $2 a litre.

Dr Lowe said there are two issues that the RBA is paying close attention to: supply price shocks and the extent to which the Ukraine war will compound onto this, as well as how labour costs in Australia evolve.

"Prior to the war in Ukraine, there was some evidence that the supply-side issues in the global economy were gradually being resolved," he said.

"Delivery times had shortened a bit, global car production was increasing again and the prices of semiconductors had come off their peaks.

"These developments were providing a basis for expecting that supply-side inflation pressures would ease over time, both globally and here in Australia."

Are the big bank forecasts on the money?

Off the back of this address, Commonwealth Bank economists jumped to back their previous prediction that the cash rate will hike in June 2022.

"RBA Governor Philip Lowe today sounded closer to raising interest rates than at any other time over the pandemic," CBA economists said.

"The RBA Governor made it crystal clear that the RBA do not need to see two further CPI prints before raising the cash rate."

NAB economists also recently brought their forecasts forward by three months, now believing Australian will see the first cash rate hike in August 2022.

Chad Hoy Poy, National Lending Manager at digital lender WLTH, said NAB's latest prediction could mean that now is the time to get ready for a steady increase in mortgage rates.

"It is expected that home loan interest rates will increase mid to late 2022, the extent of the rise is difficult to forecast," Mr Hoy Poy said.

"It all depends if lenders pass on the full rate rise to their customers or absorb more of the costs themselves to remain competitive in the market.

"I believe there will be a few lenders keeping their variable rates relatively low compared to others so it is crucial that you do your research if or when the time comes for you to look for a new home loan."

Westpac economists also predicted an August cash rate hike, while ANZ predicted a September cash rate rise.

Already the major banks have increased fixed home loan rates multiple times over the past few months, with the latest being NAB on Wednesday morning - rates are as much as 195 basis points higher than a year ago.


Advertisement

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
QLD/NSW/VIC/SA METRO & INNER REGIONAL AREAS
QLD/NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 29, 2022. View disclaimer.


Image by Kelly Sikkema on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

Latest Articles

author-avatar
Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

Collections:

Be Savings smart.
Subscribe for free money newsletters.

By subscribing you agree
to the Savings Privacy Policy