Top banks flag rate hikes are on way

THERE are fears Wednesday’s massive jump in inflation could flow onto mortgage repayments, with the Reserve Bank of Australia now considering whether to hike interest rates to combat growing costs.

After the announcement that the consumer price index (CPI) has risen by 7.3 per cent in the past year, the banks and some experts are proposing interest rates could be hiked by at least 0.5 per cent by the end of the year, with two more meetings before 2023.

Three of the four big banks have increased their forecasts following the inflation announcement, with the Commonwealth Bank (CBA), NAB and ANZ all anticipating the cash rate will be hiked by 25 basis points at both the RBA’s November and December board meetings, taking the rate to 3.10 per cent by the end of 2022.

“There are no two ways about it – inflation is red hot in Australia right now, as it is in many parts of the world, and we expect the RBA will respond by raising the cash rate again,” a CBA spokesperson said.

“Indeed, our call has been that the RBA will deliver one or two more 25bp rate hikes, then pause for an extended period.”

ANZ has flagged that a single shock rise of 50 basis points in November is “possible”.

“But we think the RBA will prefer to hike more frequently than shift back to 50bp, given the reasoning behind the decision to go to 25bp in October,” a spokesperson said.

A rise in the cash rate of just 0.25 per cent in November will see households paying $809 more per month on their mortgage than they were in April on a $500,000 home loan, according to Canstar.

For those with a $1 million mortgage, repayments will jump by more than $1619 for a 0.25 per cent jump.