As the cash rate climbed to 3.1% in 2022, Australian borrowers faced tightening purse strings. The pressing query now is whether mortgage holders will confront a comparable scenario in 2023. What actions can we anticipate from the RBA in 2023?
Last year, the Reserve Bank of Australia lifted interest rates consecutively for eight months, causing anxiety among the Australian populace. By December, the cash rate had surged to 3.1%, surpassing the previous record levels seen a decade ago.
If someone in Australia has a $500,000 mortgage, the combined rise in their monthly repayments stemming from the rate hikes since April 2022 would be $910. It equates to $11,000 per year.
In his December statement, RBA governor Philip Lowe emphasized that Australia’s economy was still in a precarious state. He stated that the Reserve Bank’s board did not have a predetermined path, but instead “anticipates raising interest rates gradually over time.”
As stated in Lowe’s announcement, the Reserve Bank’s decisions regarding future interest rate hikes will hinge on new data. In addition, the board’s analysis of inflation and job market prospects.
Economists throughout Australia are cautious about the RBA’s statement. PropTrack senior economist Eleanor Creagh anticipating that the RBA will increase the cash rate by another 25 basis points in February. This would raise the total cash rate to 3.35% and result in the ninth consecutive month of rate increases. Creagh clarifies that if the RBA raises the cash rate by 25 basis points in February, monthly payments on a $500,000 mortgage will rise by an additional $76.
An Australian with a $500,000 mortgage would see their monthly repayments increase to $986 per month. That is if the cash rate is raised by 25 basis points in February. It brings the total increase since April 2022 to $1,470 per month. PropTrack senior economist Eleanor Creagh does not expect a 50-basis point increase. But she cautions that if it were to happen, monthly repayments on a $500,000 mortgage would increase by $152.
Although the figures appear daunting, economists remain positive that the worst is over. “After a February rate hike, the RBA will most likely pause and evaluate the effects of the rising rates on households and economic conditions,” explains Creagh.
Will There Be One Last Hike?
Gareth Aird is the head of Australian Economics at Commonwealth Bank. He agrees with Creagh’s opinion about a pause in rate hikes this year. He goes as far as to suggest that there may be only one rate hike in the whole of 2023.
According to 9News, Aird predicts that there will be one more rate hike in the first quarter of 2023. It would take the cash rate to 3.35%, provided the rate rise does not exceed 25 basis points. Aird also says that the RBA is expected to remain on hold thereafter since slower growth in demand is likely to bring down inflation in 2023.
However, Aird warns that the key risk to their RBA forecast is the labor market and the evolution of wages growth. If wage growth increases to levels inconsistent with the RBA’s inflation target, the central bank may not be able to achieve the desired soft landing. Aird expects the RBA to achieve a soft landing, and he anticipates below-trend growth in 2023 rather than a recession.
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