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ANZ Bank gives homeowners an interest rate warning

Why your mortgage is about to get even more expensive: Millions of homeowners are getting a dire warning as interest rates continue to rise

  • ANZ expects Reserve Bank cash interest rate to hit 11-year high of 3.85 percent
  • But David Plank, head of Australia’s economy, said an even higher rate is possible
  • This is because wage growth has exceeded 3 percent for the first time in almost ten years

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ANZ fears interest rates could go even higher than they expect as wage growth has accelerated.

The bank expects the Reserve Bank of Australia to continue raising interest rates until cash rates, now at a nine-year high of 2.85 percent, reach a new 11-year high of 3.85 percent by May 2023.

But ANZ’s head of Australia’s economy, David Plank, fears the RBA could raise interest rates even further, with wage growth now above three per cent for the first time since 2013.

“We are increasingly wondering whether 3.85 percent will turn out to be the peak of the RBA cycle, or whether it will be higher,” he said.

“An important factor is what happens to wage growth.”

ANZ fears interest rates could go even higher than they expect as wage growth has accelerated (pictured is a bartender from Sydney)

The wage price index in the year to September grew 3.1 per cent, but retail workers fared even better with a 4.2 per cent increase as Australia’s lowest paid workers benefited from a 5.2 per cent increase in the minimum wage on July 1 .

What the major banks now expect

ANZ: 3.85 percent cash rate by May 2023

WESTPAC: 3.85 percent cash rate by May 2023

NAB: 3.6 percent in March 2023

COMMONWEALTH: 3.1 percent by December 2022

Plank said the strongest wage growth in nearly a decade would mean the Reserve Bank would raise interest rates by another 0.25 percentage point in December to a new 10-year high of 3.1 percent.

He said it is possible that next year wage growth could hit 4 percent for the first time since March 2009, when the mining boom coincided with the global financial crisis.

“We have long seen annual wage growth reach nearly four percent over the course of 2023,” he said.

“The question is whether it will continue.”

The wage price index grew by one per cent in the three months to September, and Mr Plank said another quarterly increase of that magnitude in the December quarter and into 2023 would mean the Reserve Bank cut the spot rate by more than four for the first time percent would increase since May 2012.

“If private sector wage growth returns above 1 percent quarter-on-quarter, the inflation outlook will look more challenging for the RBA,” he said.

The bank expects the Reserve Bank of Australia to continue raising rates until cash rates, now at a nine-year high of 2.85 percent, reach a new 11-year high of 3.85 percent.  But ANZ's head of Australia's economy, David Plank, fears the RBA could raise rates even further

The bank expects the Reserve Bank of Australia to continue raising rates until cash rates, now at a nine-year high of 2.85 percent, reach a new 11-year high of 3.85 percent.  But ANZ's head of Australia's economy, David Plank, fears the RBA could raise rates even further

The bank expects the Reserve Bank of Australia to continue raising rates until cash rates, now at a nine-year high of 2.85 percent, reach a new 11-year high of 3.85 percent. But ANZ’s head of Australia’s economy, David Plank, fears the RBA could raise rates even further

‘Then a cash rate of more than four percent by mid-2023 becomes more likely, with negative consequences for economic growth and house prices, among other things.’

Despite the strong profits, most Australian workers are taking a real pay cut as wage increases fall far short of the 32-year high inflation of 7.3 percent.

Inflation is more than double the Reserve Bank’s target of two to three percent, and the RBA expects this to continue through 2025.

The futures market is less concerned about interest rates than ANZ, forecasting a spot rate of 3.75 percent by September 2023.

Westpac, like ANZ, forecasts a spot rate of 3.85 percent by May 2023, while NAB forecasts a spot rate of 3.6 percent by March.

The Commonwealth Bank, Australia’s largest mortgage lender, expects a cash interest rate of 3.1 percent by December 2022.

But Gareth Aird, the CBA’s head of Australian economics, said the 48-year low unemployment rate of 3.4 percent in October could push the Reserve Bank’s rate of increase even higher.

“At the margin, it provides support for a further 25 basis point rate hike at next February’s board meeting,” he said.

The futures market is less concerned about interest rates than ANZ, forecasting a spot rate of 3.75 percent by September 2023.

The futures market is less concerned about interest rates than ANZ, forecasting a spot rate of 3.75 percent by September 2023.

The futures market is less concerned about interest rates than ANZ, forecasting a spot rate of 3.75 percent by September 2023.

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