Major lenders are predicting the official cash rate will near 3 per cent by the end of the year.Credit:Brook Mitchell
Rate moves of this size would potentially add thousands of dollars a year to mortgage repayments,creating a political and economic headache for the federal government at a time when households are already struggling with cost-of-living pressures.
After saying it expected interest rates to remain steady until 2024,the RBA began raising rates just ahead of the May federal election. They are currently sitting at 1.35 per cent.
Westpac chief economist Bill Evans said he now expected the cash rate to reach 3.1 per cent by December and 3.35 per cent by February. The last time official interest rates were at 3 per cent or more was in 2013.
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“Just as the[RBA] board overstimulated the economy in the face of the COVID threat,so it will be prepared to tighten to address what it perceives as the greater risk – losing control of inflation expectations at this time of rising inflation and very tight labour markets rather than fine-tuning the economic downturn,” Evans said.
NAB is forecasting a cash rate of 2.85 per cent by year’s end. The bank’s economists said thefall in unemployment to 3.5 per cent was “too large to ignore” and next week’s data was likely to show strong growth in inflation.
“Such a tight labour market – and other indicators of domestic capacity constraints from NAB’s business survey – points to ongoing domestic inflation pressures,” its economists said.