Commonwealth Bank warns borrowers on possible rate hike
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The landscape of Australian home loans is shifting again, and for those of us with a mortgage, it's crucial to stay informed.
The Commonwealth Bank (CBA), one of Australia's largest home lenders, has recently delivered news that could have significant financial implications for many Australians.
Here's what you need to know to prepare for the potential changes ahead.
In a recent update, the Commonwealth Bank has altered its forecast, suggesting that we may see an interest rate rise before any potential relief comes our way.
This is a stark contrast to their earlier prediction of three rate cuts in 2024, which has now been revised to just one.
Gareth Aird, the Head of Australian Economics at CBA, has pointed to the latest inflation figures as the primary cause for concern.
With all key measures soaring well above the Reserve Bank's target of 2 to 3 per cent, the possibility of a quarter-percentage-point rate hike looms large.
This would push the Reserve Bank of Australia cash rate up to 4.6 per cent, the highest it's been since November 2011, and add to what is already the most aggressive series of hikes since 1989.
'The near-term risk sits with an interest rate hike,' Aird stated.
‘But we expect the RBA to be on hold over the next six months given the economy is still contracting on a per capita basis, inflation is forecast to fall further, and the labour market is anticipated to loosen.’
What does this mean for the average Australian with a mortgage?
If another rate rise occurs, a borrower with an average $600,000 mortgage could be looking at an additional $100 per month in repayments.
The Big Four banks, including CBA, Westpac, National Australian Bank, and ANZ, now forecast a rate cut in November, with varying predictions for 2025.
CBA has adjusted its expectations to five rate cuts instead of six, which would bring the cash rate down to 3.1 per cent, as opposed to the previously forecasted 2.85 per cent.
'We now see a more elongated and conservative easing cycle than previously expected,' Aird said.
The Reserve Bank has decided to keep the cash rate at 4.35 per cent, which is the highest it has been in 12 years, in the 30-day interbank futures market.
Financial markets are also bracing for the possibility of a rate hike, with bond market yields on the rise, indicating that investors are preparing for higher borrowing costs.
This comes after the Australian Bureau of Statistics reported a higher-than-expected increase in headline inflation for the March quarter of 3.6 per cent.
Despite these pressures, Aird suggested that unemployment will likely rise as higher interest rates lead to reduced consumer spending.
'Discretionary inflation is likely to fall further as Australian households continue to tighten their belts,' he said.
'This, in turn, will see the labour market loosen and wage pressures dissipate.’
'As wage growth eases, it will put downward pressure on cost-push inflation in the services sector where wage growth is generally the dominant driver of price rises (note that dynamic is not applicable to rents, which are considered a service).'
The record of 548,800 migrants moving to Australia has added to the situation's complexity.
Aird said this has fueled inflationary pressures by increasing demand for goods and services and disguising Australia’s per capita recession.
The surge in Australia's population over the past eighteen months has been extraordinary,' he said.
'The surge in population growth has boosted aggregate demand in the economy.’
'In turn, this has somewhat masked the per capita decline in real consumer spending.’
'More importantly, from a monetary policy perspective, there are implications for inflation.'
If the forecasted rate rise in 2024 passes, borrowers with an average $600,000 mortgage could see their monthly repayments increase to $3,968, up from $3,868.
This would represent a staggering 72 per cent increase compared to early May 2022.
The Reserve Bank shall have its meeting on 7 May.
How are you preparing for the possibility of higher mortgage repayments? Share your strategies and concerns with us in the comments below.
The Commonwealth Bank (CBA), one of Australia's largest home lenders, has recently delivered news that could have significant financial implications for many Australians.
Here's what you need to know to prepare for the potential changes ahead.
In a recent update, the Commonwealth Bank has altered its forecast, suggesting that we may see an interest rate rise before any potential relief comes our way.
This is a stark contrast to their earlier prediction of three rate cuts in 2024, which has now been revised to just one.
Commonwealth Bank warned borrowers of a possible rate hike. Credit: Shutterstock
Gareth Aird, the Head of Australian Economics at CBA, has pointed to the latest inflation figures as the primary cause for concern.
With all key measures soaring well above the Reserve Bank's target of 2 to 3 per cent, the possibility of a quarter-percentage-point rate hike looms large.
This would push the Reserve Bank of Australia cash rate up to 4.6 per cent, the highest it's been since November 2011, and add to what is already the most aggressive series of hikes since 1989.
'The near-term risk sits with an interest rate hike,' Aird stated.
‘But we expect the RBA to be on hold over the next six months given the economy is still contracting on a per capita basis, inflation is forecast to fall further, and the labour market is anticipated to loosen.’
What does this mean for the average Australian with a mortgage?
If another rate rise occurs, a borrower with an average $600,000 mortgage could be looking at an additional $100 per month in repayments.
The Big Four banks, including CBA, Westpac, National Australian Bank, and ANZ, now forecast a rate cut in November, with varying predictions for 2025.
CBA has adjusted its expectations to five rate cuts instead of six, which would bring the cash rate down to 3.1 per cent, as opposed to the previously forecasted 2.85 per cent.
'We now see a more elongated and conservative easing cycle than previously expected,' Aird said.
The Reserve Bank has decided to keep the cash rate at 4.35 per cent, which is the highest it has been in 12 years, in the 30-day interbank futures market.
Financial markets are also bracing for the possibility of a rate hike, with bond market yields on the rise, indicating that investors are preparing for higher borrowing costs.
This comes after the Australian Bureau of Statistics reported a higher-than-expected increase in headline inflation for the March quarter of 3.6 per cent.
Despite these pressures, Aird suggested that unemployment will likely rise as higher interest rates lead to reduced consumer spending.
'Discretionary inflation is likely to fall further as Australian households continue to tighten their belts,' he said.
'This, in turn, will see the labour market loosen and wage pressures dissipate.’
'As wage growth eases, it will put downward pressure on cost-push inflation in the services sector where wage growth is generally the dominant driver of price rises (note that dynamic is not applicable to rents, which are considered a service).'
The record of 548,800 migrants moving to Australia has added to the situation's complexity.
Aird said this has fueled inflationary pressures by increasing demand for goods and services and disguising Australia’s per capita recession.
The surge in Australia's population over the past eighteen months has been extraordinary,' he said.
'The surge in population growth has boosted aggregate demand in the economy.’
'In turn, this has somewhat masked the per capita decline in real consumer spending.’
'More importantly, from a monetary policy perspective, there are implications for inflation.'
If the forecasted rate rise in 2024 passes, borrowers with an average $600,000 mortgage could see their monthly repayments increase to $3,968, up from $3,868.
This would represent a staggering 72 per cent increase compared to early May 2022.
The Reserve Bank shall have its meeting on 7 May.
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