Aus Reserve Bank Interest Rates To Increase In June, Aug & Sept - Deutsche Bank
Tomorrow there might be another interest rate increase in Australia. It's possible that three more increases could occur by September. The reason for this is because inflation could worsen due to a large minimum wage increase.
Phil O'Donaghoe, Deutsche Bank Australia's boss economist thinks the Reserve Bank will hike interest rates. He believes the bank will raise them by 0.25% each in June, August and September.
The cash rate would go up to 4.6%, the highest since November 2011. This means adding $295 to an average, $600,000 mortgage every month.
Since May 2022, interest rates have increased 11 times. This puts the cash rate at 3.85%, which is the highest it has been in 11 years. This is also the fastest monetary policy tightening since 1989. Another increase is expected soon.
There might be a rise in interest rates on Tuesday. It's about a 55% chance. If it happens, cash rates could rise by 25 basis points to 4.1%.
Deutsche Bank stated that pausing in June would result in an increase in July.
Australia's economic situation is very bad. The Melbourne Institute research centre said it's the worst it's been since 2008's Global Financial Crisis.
The Fair Work Commission granted an 8.6% minimum wage increase on July 1, which is the highest increase since 1990. Mr. O'Donaghoe believes that this decision will lead to an additional rate rise in September.
In September, three more interest rates might affect Australians, starting with a rise tomorrow. This may happen because of the recent minimum wage increase, which could lead to inflation. A photo of a hospitality worker in Sydney was used in the article.
The speaker said that household spending is doing okay. House prices are going up fast. Unemployment might not change for six months. Minimum wage decision means wages might go up a lot. The speaker thinks that the cash rate will stop at 4.6% in September.
Impact Of Rate Increases On $600K Loan
The rate hike means paying $97 more every month. The new monthly amount is $3,730. Before the hike, it was $3,633.
There are three additional hikes. The cost is now $295 more per month. The new cost is $3,928. The previous cost was $3,633.
The Commonwealth Bank has a method for setting variable rates. If a borrower has a 20% deposit, the rate goes up from 6.09% to 6.34%. This happens when the Reserve Bank cash rate climbs from 3.85% to 4.1%. Also, if the cash rate climbs to 4.6%, the rate goes up even more, from 6.84% to reflect it.
The RBA might increase interest rates this week. It's expected to go up by 25 basis points. They may raise it again in August and September. Both times will see an increase of 25 basis points.
In August, our call was 4.1%.
Mr. O'Donaghoe thinks that if there is a pause in June, then the rates will increase in July unless there is an inflation stance change signaled by the Reserve Bank.
He said June is uncertain, maybe 60% chance for a rate hike or a pause.
If the RBA stops in June, we'll think it's just temporary. Without clear indication otherwise, we'll delay our prediction of a hike until July.
Sean Callow from Westpac said on Monday that market pricing for a Tuesday rate hike had decreased from 55% to almost 50% since Friday night.
When the Reserve Bank of Australia announces its decision at 2.30pm Sydney time, it will affect the Australian dollar significantly.
Mr Callow said that if the pricing is close to this area, then the Australian dollar will have a big reaction. The reaction can go either way.
If there's one more increase, the monthly repayments for an average mortgage of $600,000 with a 20% deposit will go up by $97.
If rates go up three times, the borrower has to pay an extra $295 each month. The new monthly payment would be $3,928, compared to the current payment of $3,633.
Phil O'Donaghoe, chief economist of Deutsche Bank Australia, predicts that the Reserve Bank, led by Governor Philip Lowe in the photo, will increase interest rates by 0.25% in June, August, and September.
In May 2022, the RBA cash rate was 0.1 percent and banks had affordable mortgage rates. Today, monthly repayments are $1,622, which is much higher. This means that yearly repayments are now $19,464 more expensive.
Australia's Highest Ever Minimum Wage Increase
In 1990, the minimum wage rose to $311.30 from $285.10. However, the increase was divided into six-month periods, and it reached a low of 9.2 percent.
In 2023, the minimum wage will increase to $882.89 from $812.60. This is a rise of 8.65%. The increase is based on new job classifications. If you have a modern award, your minimum wage will increase by 5.75%.
In 2006, the minimum wage rose to $511.86 from $484.40 during the mining boom. It was an increase of 5.7 per cent.
The minimum wage will go up to $812.60 in 2022. This is a 5.2% increase from the previous minimum wage of $772.60. The increase is just above inflation. This means that people who work minimum wage jobs will have a little more money in their pockets. The increase is the highest it has been in 20 years.
The Australian Minimum Wage has a history. The Fair Work Commission published it. It's an interesting read. The Annual Wage Review for 2022-23 is also worth checking out.
Interest rates for mortgages have gone up to six per cent. If three more increases occur, rates could reach seven per cent by September. This is when the Reserve Bank of Australia Governor's term ends.
The Fair Work Commission allowed 184,000 lowest paid workers (in hospitality, retail, and tourism sectors) to have an 8.6 per cent pay raise. This decision by the commission can affect other employees too.
The president of the industrial umpire is Justice Adam Hatcher. He increased the pay of 2.5 million workers who received national awards. The increase was of 5.75 percent.
Mr O'Donaghoe thinks low-paid workers will get more money. This could make wages go up by 4.5%. This would be the highest ever.
Wages may go higher than the Reserve Bank's prediction of four per cent, which is the highest in 14 years. This might be the most significant increase in wages since the beginning of the Australian Bureau of Statistics' wage data in 1998.
The boss of Employment Hero, Ben Thompson, thinks the pay increase might cause problems. The rise might have unexpected results.
He said that the FWC decision poses a risk to both employees and employers.
There are two issues with a big increase like this. One is that it could cause a wage-price spiral. The other is that it could lead to more unemployment.
The Melbourne Institute thinks that people are more miserable since the pandemic. This is the worst it has been since 2008.
Misery levels have gotten worse since the pandemic. It's the worst it's been since 2008. Two authors, Guay Lim and Sam Tsiaplias, wrote a report about it. The report talks about how people with jobs are unhappy because of high interest rates and the cost of living.
People with jobs are very unhappy because of high interest rates and the cost of living crisis. Guay Lim and Sam Tsiaplias wrote a report about it.
They said that rising interest rates have caused the cost of living to increase. This affects households with employed people, also known as employee households.
Interest rates going up recently means it costs more for workers to live.
The Melbourne Institute thinks that lots of rate rises could harm the economy. They are hoping that things will improve by the end of the year.
"It may go up a bit, but we predict it'll improve in 2023," the statement explained.
In April, unemployment increased to 3.7%. This is higher than the low of 3.5% we had 48 years ago. The RBA believes that it will reach 4.5% by December 2024.
People who borrow money have been facing a lot of rate increases. This has been happening since 1990, when the RBA started using a target cash rate. It's really painful and hasn't been this bad since 1989. Back then, rates were 18%, but houses were cheaper.
Inflation went up in April to 6.8%. This is more than the RBA's goal of 2 to 3%. In March, inflation was 6.3%.
On Tuesday afternoon, the Reserve Bank will announce its decision for June.
