As inflation pressures rise, the Paris-based OECD anticipates that Australian interest rates will reach an 11-year high of 3.6% in 2023.
Three of Australia’s Big Four banks are less concerned about increasing interest rates than the world’s leading financial experts.
Since May, Australian house borrowers have seen five straight monthly rises, causing the cash rate to reach a seven-year high of 2.35 percent in September.
The Reserve Bank of Australia has tightened monetary policy to the greatest extent since 1994 in response to the end of the record-low 0.1 percent cash rate.
However, the OECD forecasts additional suffering and an 11-year high cash rate of 3.6% in Australia in 2019.
Further policy rate rises are required in most significant advanced countries, according to the report, in order to guarantee that inflation pressures are significantly eased and forward-looking measures of real interest rates become positive.
According to projections, policy interest rates will increase to 4.5 to 4.75 percent in the US, 4.5 percent in Canada, 4.25 percent in the UK, and 3.6% in Australia by 2023, reflecting the clear labor market pressures in these nations.
If the OECD’s forecast for Australia materializes, a borrower with an average $600,000 loan would be required to make $1,116 more in repayments each month than they would have in early May, when the cash rate was still at an all-time low of 0.1%.
This borrower’s monthly payments would increase to $3,422 from $2,966 in 2023, costing their bank $456 more than they do today.
This borrower’s monthly payment as of May would have been $2,306 for a typical loan with a lower variable rate.
Only one of the Big Four banks—Westpac—predicts a 3.6% RBA cash rate by February of the following year, siding with the OECD.
By December, ANZ expects the cash rate to reach 3.35 percent, but on Tuesday it seemed to be modifying that prediction.
According to the statement, “In Australia, we are evaluating whether further rises above our peak prediction of 3.35 percent may be warranted.”
The largest mortgage lender in Australia, The Commonwealth Bank, has predicted a November cash rate of 2.6%.
By November, the NAB expects the cash rate to reach 2.85%.
Australia’s headline inflation rate increased by 6.1% in the year to June, well beyond the RBA’s target range of 2 to 3%.
By the end of 2022, the Reserve Bank predicts it will reach a 32-year high of 7.75 percent before declining to 4.25 percent by the end of 2023.
The OECD predicts 2023 will see inflation of 4.4%, which is a little less optimistic.
As yearly growth dropped to only 2% compared to 5% in the U.S., it is also projecting a recession in both the Euro zone and American economies.
Australia’s gross domestic product was projected to fall from an anticipated 4.1% for 2022 to 2% in 2023.
The OECD observed that due to Russia’s invasion of Ukraine and the subsequent increase in crude oil prices, inflation in G20 countries, which includes Australia, was already on the rise.
According to the report, “Even before Russia invaded Ukraine, inflation was above central bank targets in most G20 economies, driven by the initial surge in energy prices as economies reopened after the pandemic, bottlenecks in supply chains, rising freight costs, and the shift in composition of private consumption towards goods.”
As economy slows in China, Australia’s largest trade partner, ANZ is now predicting a recession in the UK in 2023 as well as “shallow recessions” in the EU and the US.
Lower growth in China is anticipated during the next years, signaling the end of the country’s two decades of economic exceptionality, the report said.