RBA Could Rise As Soon As NEXT WEEK: What It Means For You

The Reserve Bank of Australia (RBA) is expected to raise interest rates, with many major banks predicting it will happen in June this year.

But Westpac chief economist Bill Evans told ABC Radio that the bank expected the RBA to rise as much as 0.4 percent.

This would be a major rate hike for the central bank, which would normally only make moves of 0.25 percent at a time.

“There is considerable speculation that they will move on May 3, but I think that has really been ruled out by the guidance that we have seen from the Reserve Bank about wanting to see data in the coming months,” Evans said.

“We expected only 0.15 to pass [percentage points] but now, with this environment of much stronger inflation, much stronger job market, I think there is a need to go faster than that.

“So a first move of 0.4 [percentage points]and then set back to 0.25 [percentage point] it moves in most months between now and the end of the year.”

RBA could rise next week

However, not all economists agree that the bank will go higher with such a big move, but instead start smaller and earlier.

Betashares chief economist David Bassanese said he believed the RBA could rise as soon as next week at the bank’s May meeting.

“However, given rising global supply chain bottleneck issues and more aggressive rate hikes expected in the US, I now believe the RBA should, and probably will, raise rates. interest next week at 15 basis points. [bps] – the case for moving up is so obvious that he doesn’t have to feel bound by next month’s salary report,” Bassanese said.

“Indeed, while inflationary pressures are building in Australia, they remain less acute than in the US, so we don’t need to risk rattling economic sentiment with a 40bp ‘shock and amaze’ move on next month”.

the story continues

Bassanese said a small rate hike at next week’s May meeting would allow for a more gradual rise and be smoother for Aussies to absorb.

“Overall I think the RBA should and will conclude that it makes more sense to start slow with 15bps next week after the CPI, followed by a traditional 25bps move in June,” he said.

“In fact, the only real argument to delay now is the current federal election; As it last happened in 2007, I think this is another good opportunity for the RBA to show its independence again.”

What a rate hike will mean for you

There is no doubt that banks will pass on an interest rate increase to customers and mortgage holders.

Canstar’s analysis found that if the cash rate hit 1 percent this year and lenders approved the increase in full, the average variable rate would rise from 2.99 percent to 3.89 percent.

“This would cause monthly payments for the national median home value of $805,621 to increase by $322 per month to $3,036, costing borrowers almost an additional $4,000 per year and more than $116,000 in interest over the life of their loan,” Canstar group executive, financial services, Steve Mickenbecker said.

Those who live in Sydney would feel the burn the most.

The median home price in Sydney is $1,403,154. If a homebuyer put a 20 percent deposit on a home of that value, their loan would be $1,122,523.

The cash rate coming in at 1 percent, up from 0.1 percent, would mean an increase of $561 in monthly payments, or an additional $202,178 in interest costs on a 30-year loan.

In Melbourne, the median home value is $999,037. The loan amount would be $799,230 with a 20 percent deposit.

Monthly payments could increase by $400, adding $143,949 in interest over 30 years.

In Brisbane, the median home price is $856,731, and based on the same calculations above, monthly payments could increase by $343.

This would see interest added to the loan over 30 years of $123,444.

The median home price in Adelaide is $658,446 and with a loan amount of $526,757, a rate increase could increase payments by $264 per month and add $94,874 in interest payments over the life of the loan.

In Hobart, the median home price is $791,587, and based on that, a rate increase could cause payments to increase by $317 per month. This would add $114,058 in interest costs over 30 years.

The median home price in Perth is $568,108, and a home of this value could increase monthly payments by $227 and add $81,858 in interest costs.

In Canberra, the median home price is $1,055,812, and with a loan amount of $844,650, an interest rate increase could add an additional $422 to monthly payments.

This would add $152,130 in interest payments over 30 years.

In Darwin, the median home price is $568,647. A 1 percent cash rate could increase monthly payments by $228 and add $82,079 in interest costs over 30 years.

Follow Yahoo Finance on Facebook, LinkedIn, Instagram Y Twitterand sign up for the free Completed Briefed program daily newsletter.