For mortgage holders, the end of interest rate increases and rising home loan repayments is still up in the air as market pricing puts the chance of a rate hike in June at 37%.

The arguments for a rate hold in June remain largely the same: a pause is needed to get a clearer picture on demand and inflation, the domestic economy is showing signs of slowing, and the full extent of the impact of rate tightening is yet to be felt entirely. 

However, not all economists agree with some arguing a 25 basis point lift will be revealed tomorrow.

Freedom of Information requests put forth to the RBA on 11 May revealed internal modelling showed the cash rate would need to be 4.80% if underlying inflation were to hit 2.5%, or within the RBA's target, by 2025, accounting for an unemployment rate of 4.5%.

The Fair Work Commission’s decision to increase the minimum wage by at least 5.75% forced some major economists to update their cash rate forecasts as the boost could add to the risk of higher inflation.

AMP Chief Economist Shane Oliver said a rebound in inflation tied with the latest award wage increase and poor productivity is likely fuelling the RBA’s concern that high inflation is here to stay for longer.

“The Fair Work Commission’s decision to increase award rates of pay by 5.75% and the still tight labour market means its looking increasingly likely that wages growth (now running at 3.7%yoy) will push beyond the 3 to 4% comfort zone,” Mr Oliver said.

“This is at a time when productivity is very poor adding to the risk of further upwards pressure on unit labour costs.

“So following the April inflation data and the further step in minimum and award wages growth, the risk is now very high that ongoing inflation and wages concerns will see the RBA overtighten and knock the economy off the narrow path.”

Dr Oliver is now allowing for another 25 basis point hike in the cash rate on Tuesday, taking it to 4.1%. If the RBA throws an unexpected curve ball and decides to hold, Dr Oliver is pencilling in a July increase.

The ABS Consumer Price Index (CPI) revealed that in the 12 months to April, inflation rose to 6.8% - up from the previous reading of 6.3%.

On Friday morning, before the minimum wage decision, ANZ economists revised their forecasts, tipping two successive interest rate rises this month and next, pushing the final cash rate to 4.35%. 

As it currently stands, CommBank and Westpac expect the cash rate to hold at 3.85% in June while ANZ and NAB predict a 0.25% increase to 4.10%. 

ANZ economists the most hawkish of them all

ANZ Head of Economics Adam Boyton said the major bank no longer sees a terminal cash rate of 4.1% as sufficient enough to bring inflation back to target in a reasonable time frame.

“Given our view that higher rates are more likely and the tendency of the RBA not to delay, at the margin we favour a June rate rise,” Mr Boyton said.

“The inflation ‘challenge’ in Australia is not the pace of wages growth, but the weakness in productivity growth that has pushed up unit labour costs.”

NAB economists tip a 25 basis point increase

NAB Economist Taylor Nugent said it is a question of when, not if the RBA will raise rates further.

“We see the June meeting as very live and we wouldn’t be surprised to see the RBA lift rates on Tuesday,” Mr Nugent said.

“NAB’s call has been for the cash rate to reach 4.1% by August, with July most likely and the risks skewed to a higher peak.”

CommBank retains its call: pause is likely

CommBank Head of Australian Economics Gareth Aird said while the June Board meeting is now ‘live,’ there is a 70% chance the RBA holds this month.

“The bottom line is that inflation continues to decelerate,” Mr Aird said.

“We are mindful that the RBA Board may place some weight on the change in the annual rate due to its influence on inflation psychology and inflation expectations.

“But overall we thought the data was encouraging rather than cause for concern.

“We believe the domestic economy is now showing sufficient signs of slowing and we expect the RBA Board will judge that leaving the cash rate on hold is the appropriate policy move in June.”

CommBank predicts the cash rate to reach a peak of 3.85%, but the near term risk does sit with another hike.

Westpac economists stick to their guns: pause in June

Despite incorrectly predicting last month’s cash rate increase, Westpac Economist Bill Evans has once again pencilled in the RBA to hold the cash rate steady in June.

“There is too much uncertainty for the RBA Board to raise the cash rate again next week,” Mr Evans said.

“In particular, the outlook for household spending is very worrying especially with inbuilt lags associated with this unique cycle.

“An extended pause to allow full evaluation of these lags is the best policy.”

Mr Evans also said a pause would be prudent given the release of the national accounts report which details important updates on the savings rate, productivity, and labour costs.


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.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
5.69% p.a.
6.16% p.a.
$2,319
Principal & Interest
Fixed
$0
$530
90%
Featured
  • Available for purchase or refinance. 90% LVR
  • Fast turnaround times. Can meet 30-day settlement
  • No monthly or ongoing fees, split with low-rate variable loan
Disclosure
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
Featured Apply in minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Disclosure
6.09% p.a.
6.11% p.a.
$2,421
Principal & Interest
Variable
$0
$250
60%
Featured
  • No annual fees – None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely – Access your additional payments when you need them
  • Home loan specialists available today
Disclosure
Important Information and Comparison Rate Warning

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. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. 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 . View disclaimer.

Important Information and Comparison Rate Warning

Image by 8photo via freepik





Ready, Set, Buy!


Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!

With bonus Q&A sheet and Crossword!

By subscribing you agree to our privacy policy