Australia's Cash Rate Expected to Rise to 4.6%, Average $1,440 Annual Additional Burden

All Four Major Banks Predict 0.25 Percentage Point Increase

The Reserve Bank of Australia (RBA) will announce its cash rate decision at 2:30 PM on the 30th. The four major commercial banks—Commonwealth Bank, Westpac, NAB, and ANZ—all predict a 0.25 percentage point increase, which financial markets have priced in with 80-90% probability.

If the cash rate rises from the current 4.35% to 4.6%, it will be the highest level since 2011. ANZ has raised the possibility of an additional increase in November. Westpac and Commonwealth Bank have brought forward their November increase forecast to this month.

Commonwealth Bank analyzed that if the quarterly core inflation announced on the 30th rises by more than 1%, there is a high likelihood of triggering an additional increase in November. NAB stated that while a single increase is likely, the risk of additional increases remains depending on employment indicators.

Persistent Inflation Pressure

The background to the RBA's consideration of an increase is the risk of inflation appearing faster and higher than expected. In recent weeks, expanded Middle East conflict has pushed Brent oil prices to their highest level in months.

According to the latest figures, headline inflation is 3.5% and core inflation is 3.6%, significantly exceeding the RBA's target range of 2-3%. The main drivers are fuel costs, housing construction costs, and dining out expenses.

Domestic demand, GDP growth, and employment have shown much stronger resilience than expected, while productivity remains weak. ANZ economists analyzed that the RBA views the recent energy price surge not as a temporary phenomenon but as a long-term inflation risk to be contained.

Increased Burden on Borrowers

If banks pass on the full 0.25 percentage point increase, borrowers will face hundreds of dollars in additional annual costs. The average Australian home loan is $731,000, with Tasmania at $516,000 and NSW at $842,000. The average loan for first home buyers is $610,000.

Current average variable rates range from 6.24% to 6.62% for owner-occupiers, with the average Australian spending $4,500 to $4,680 per month on mortgage repayments.

With a 0.25 percentage point increase, the average mortgage holder will face an additional $120 per month, or $1,440 per year. NSW average borrowers will see an increase of $138 per month ($1,656 per year), and first home buyers $100 per month ($1,200 per year).

This increase will also reduce the maximum borrowing capacity for new buyers by approximately 2-2.5%, as banks' serviceability assessment criteria will become more stringent.

Renters Also Affected

Property investors holding variable rate loans will have greater incentive to pass on additional loan costs to rents. The current national rental vacancy rate is 1.2%, a situation with few alternatives.

According to a Roy Morgan survey, 29% of Australian mortgage holders (approximately 1.54 million people) are currently classified as at risk of mortgage stress. The proportion of household income required for new mortgage repayments averages 45%, significantly increased from 29.6% in 2020.

The RBA will announce its decision at 2:30 PM on the 30th, with Governor Michele Bullock holding a press conference at 3:30 PM.

Source: SBS News