Australian banks predict another interest rate rise despite hopeful investor outlook

ANZ, CBA, NAB and Westpac believe the RBA will lift its key interest rate by at least another 25 basis points, based on economic data already released. Earlier this month, the RBA hiked the rate for a record 10th consecutive time to 3.6%.

Investors responded to turmoil in financial markets over the past fortnight by slashing expectations about RBA rate moves, predicting the next move would be lower, after US authorities rescued Silicon Valley Bank and two others and the Swiss government helped UBS take over the ailing financial services company Credit Suisse.

However, the US Federal Reserve, the Bank of England and even the Swiss National Bank each lifted official interest rates this week, viewing the fight against inflation higher priority than easing the squeeze on their respective economies.

Of the big four, ANZ and NAB predict the RBA will lift its cash rate by 25 basis points in both April and May, bringing it to a peak of 4.1%. CBA is currently forecasting an April quarter-point hike before a peak, while Westpac predicts a pause then a May rise of that size.

The average owner-occupier with a $500,000 mortgage at the start of the rate hikes (May 2022) with 25 years remaining has already seen monthly repayments rise $983 (42%) to $3,318, according to RateCity.

RBA officials have stressed that inflation remains broad-based and well above the 2-3% target it aims for over time. The assistant governor, Christopher Kent, also highlighted this week that average households remain about one year ahead on mortgage repayments, giving them a buffer that is moderating the impact of higher rates.

Data from CoreLogic for the first three weeks of March indicates property prices in the state capitals have posted modest rises, halting a slide over the past year for most cities.

However the rebound may be temporary because the expiry of 880,000 fixed-term facilities this year, a looser labour market, and some uncertainty around the trajectory for inflation and interest rates, Owen said.