Major bank’s worrying rates move

NAB — one of Australia’s big four banks — has “pencilled in” a rates forecast that is bound to send shudders down the spine of already-stressed Australian homeowners.

The bank has raised its “baseline expectation” of how high the Reserve Bank will lift its cash rate and expects a 25 basis-point rate hike by the RBA’s July board meeting.

Its experts see “some risk” the increase to 4.1 per cent won’t come until August.

“Importantly, our rate call is not a response to the recent federal budget, which we judge to be broadly neutral in terms of its effects on inflation and implications for monetary policy,” it said.

Instead, the bank cites three reasons for returning to their February 4.1 per cent peak forecast: “that inflation would remain well above target in the near term; that the economy was displaying considerable resilience; and that a tight labour market would continue to support a pickup in wage growth.”

NAB, which joins ANZ among the big four in forecasting at least one more rate rise, says a further increase to 4.35 per cent isn’t being ruled out.

There are warnings that last week’s federal budget could see interest rates hiked above 4.1 per cent, plunging Australians into a world of financial pain.

Betashares chief economist David Bassanese said Treasurer Jim Chalmers’ budget last week was “unambiguously expansionary”, with the injection of money set to boost the economy by 1.5 per cent over the next two years.

“This adds to the risk that the RBA will feel the need to raise interest rates at least once and possibly twice more in the coming months,” he said.

“However admirable is the provision of cost of living support to those less well-off, they also tend to have a higher propensity to spend extra income, which will add to the challenge of slowing consumer demand in the coming year.”