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Commonwealth Bank predicts 1% cash rate this year

The Commonwealth Bank (CBA) has brought its rate hike prediction forward from August this year to June.

CBA now believes the Reserve Bank (RBA) will hike rates by 0.15 per cent in June, followed by three more 0.25 per cent increases to finish the year with a 1.0 per cent cash rate.

CBA’s head of Australian economics, Gareth Aird, said CBA also expected another hike in the first three months of next year to bring the rate to 1.25 per cent.

Aird said the CBA changed its forecast based on comments RBA governor Philip Lowe made at the House of Representatives Standing Committee on Economics.

In response to a question about whether he sees inflation on track to being sustainably within the target range Lowe said he wasn’t able to draw a conclusion just yet.

“We are prepared to take the time, particularly given our inflation history and the prospect of low unemployment. Another couple of [inflation readings] would be good to see,” Lowe said.

Aird said he believed this statement from Lowe confirmed the RBA was starting to see inflation where it would like it to be.

“We interpret this statement to mean that the RBA will conclude that inflation is “sustainably within the target range” if the next two inflation prints are in line with their forecasts,” Aird said.

What will happen when the RBA raises rates?

It has been more than 11 years since the RBA increased official rates, with the last hike in November 2010.

Since then, the central bank has cut the cash rate 18 times – meaning anyone who bought their first home in the past decade has never experienced a hike.

Canstar research found that a cash rate hike of 0.5 per cent would take the average variable rate to 3.55 per cent.

If lenders were to match the increase, someone with a 30-year, $500,000 mortgage could pay an extra $137 per month.

A cash rate hike of 1 per cent would take the average variable rate to 4.05 per cent.

This means the same borrower above could see their repayments increase by $280 per month.


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