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Highlights
- Australian big banks predict that the Reserve Bank of Australia (RBA) may increase interest rate in June, following the federal elections.
- The first rise can take the interest rate from 0.1% to 0.25%.
- Since over a million people have taken on mortgages for the first time since 2010, even a minor increase in interest rate may impact Australians immensely.
Lately, high inflationary pressures, plunging consumer confidence, and flood crisis have tapped most news headlines across Australia. Citizens have been crushed under the rising toll of cost-of-living expenses followed by the pandemic and the Russian invasion. And now we have another brick in the wall.
Australia is one of the top seven Covid-spenders globally. Due to the high government spending, the demand for goods and services rose. However, supply was limited because of the pandemic-inflicted restrictions. Thus, inflationary pressure became gruesome in the country.
To combat the rising inflationary pressure, big four banks forecast that the Reserve Bank of Australia (RBA) would raise the interest rates.
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Interest rate to rise in next six months?
The big banks predict that the RBA may increase the interest rate in June, following the federal elections. This has raised pressure on the current Scott Morrison government and the opposition party to manage the country's economic conditions.
According to the predictions, the interest rate may rise four times in the next six months; the first rise can take the interest rate from 0.1% to 0.25%. Westpac (ASX:WBC) and the Commonwealth Bank (ASX:CBA) have forecasted that the interest rate would be approximately 1.25% by the end of the year. That would raise the mortgage repayments by over AU$360 by Christmas. Likewise, National Australia Bank (ASX:NAB) and Australia and New Zealand Banking Group (ASX:ANZ) have indicated the interest rate to be 1% by the end of the year.
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Decoding consequences
Australia’s interest rate has been at a record low of 0.1% for the past decade, with a slight hike in 2010. More than one million people have taken on mortgages for the first time since 2010. Thus, even a minor increase in interest rate may immensely impact Aussies.
A rise in interest rate would consequently impact people paying off their mortgage loans. Those who have recently bought a house on a mortgage loan would suffer even higher. Because of rising interests, some may want to sell off their houses. However, the already falling housing prices will fall even further following the rate hike, making selling off the houses quite challenging for people.
The news comes as a major shock to people. Earlier, RBA had no plans to increase the interest rate. However, following the spike in prices, the country’s central bank may take the lead to raise the interest rate. Additionally, amid the rising tensions between Russia and Ukraine, oil prices may continue to rise, forging consistent pressure on Aussies.
