An average borrower could soon pay nearly 50 percent more on their home loan if the Reserve Bank decides to raise interest rates.
The central bank board will meet on Tuesday to discuss whether to raise interest rates to an 11-year high of 4.10 percent.
Analysis by RateCity suggests that a borrower with a $500,000 loan before the RBA began its aggressive tightening cycle in May last year could soon pay a total of $1,134 more, or 49 percent, per month.
A survey of economists by Finder found that just over a third of experts expect the RBA to raise the cash rate.
AMP chief economist Shane Oliver said the central bank’s “aggressive bias” combined with continued inflation, recent Fair Work Commission minimum wages and the tight labor market could lead to another hike.
“Chances are it will raise rates further,” he said.
However, the big four banks have forecast interest rates to remain unchanged at 3.85 percent, which both Westpac and CBA believe should be the high point.
On Monday, Deutsche Bank raised its peak cash forecast to 4.6 percent in September. According to chief economist Phil O’Donoghue, it is not a question of if, but when interest rates will rise.
“Several interest rate hikes now seem likely to materialize before the end of this year,” he said.
Financial markets give the chance of an increase a small 40 percent.
Monthly figures, released last week by the ABS, show that annual inflation rose from 6.3 percent to 6.8 percent in April. The next set of quarterly data is not expected until next month.
Gov. Philip Lowe, appearing before a Senate hearing last week, said the fight against inflation was far from over.
“I will not declare victory until victory is won,” he said.
The RBA forecasts that inflation will return to the target range of 2 to 3 percent by mid-2025.
Last month, the bank shocked markets and homeowners with an unexpected increase in its cash rate, rising 25 basis points to 3.85 percent.
Dr. Lowe acknowledged the pain caused by the increase, but said it was better than the alternative.
“I know that higher interest rates are not popular; they hurt people, it’s very hard,” he said.
“Every family is feeling that cost-of-living pressure, and it’s because prices have gone up 7 percent over the past year and we need to stop that.
“I know what we’re doing is painful and it’s very hard for a lot of people, but it’s necessary.”
It comes amid new reports that levels of mortgage stress have risen to the highest level since August 2008.
New research from Roy Morgan suggests that more than half a million households are at risk after the past year of increases.