Interest rate nightmare tipped to get WORSE for homeowners

The Reserve Bank of Australia is expected to raise interest rates by 0.5 per cent on Tuesday in a battle to beat soaring inflation.

The Commonwealth Bank of Australia (CBA) ANZ, NAB and Westpac are all in agreement that the RBA will hike rates by 0.5 per cent on Tuesday.

The widely predicted increase will bring interest rates to 2.35 per cent, the highest level since December 2014.

For the average variable borrower this could mean their monthly repayments will rise by $144, if the banks pass on the hike in full to customers.

“If this happens (a 0.5 per cent increase), the average owner-occupier with a variable mortgage could be paying an interest rate that’s over 5 per cent,” Rate City research director Sally Tindall said.

“That’s a huge amount of extra money to stump up month after month”

“The fastest rise to the cash rate since 1994 has seen property prices drop, as buyers’ borrowing capacity is shredded with every RBA hike, spooking owner-occupiers and investors alike.

RBA governor Philip Lowe is expected to give hints at further rate hikes during a speech on economic outlook and monetary policy at the Anika Foundation on Thursday.

ANZ is forecasting another 50 basis point hike in October.

“We don’t think Tuesday’s 50bp hike will be the last such move by the RBA,” ANZ head of Australian economics David Plank said.

“Given the strength of inflationary pressures, we think the RBA will want to take the cash rate some way above what it thinks is the bottom of the neutral range.”

Westpac chief economist Bill Evans also suggested that 0.5 per cent rate hikes could be over.

“Raising the cash rate by 50 basis points will move the cash rate into the ‘neutral zone’.”

In recent speeches the governor and deputy governor assessed “neutral” is at least 2.5 per cent,” he said.

Meanwhile, NAB group chief economist Alan Oster said the RBA could lower interest rate increases down to 0.25 per cent in October.

CBA head of Australian economics Gareth Aird has also stated that he anticipates Tuesday will be the last 50 basis point increase.

“Instead of jawboning down wages, (RBA governor) Philip Lowe should be jawboning down corporate profits and heaping pressure on the government to do something about (inflation).”

Prime Minister Anthony Albanese has expressed confidence in the RBA and Mr Lowe.

“I do have confidence in the RBA and I think it‘s appropriate that the government allow the RBA to do its job,” the Prime Minister said on Monday.

“My message is the same, of course they (the RBA) have to bare in mind … the impact on people from decisions that are made.

“Of course I’m concerned about the cost of living because I know so many Australians are doing it tough out there.”