Mortgage holders brace for Christmas pain as RBA flags more rate hikes

Australia’s embattled mortgage holders could be in for a double dose of pain in the lead up to Christmas, as one of the country’s top central bankers has warned a series of interest-rate hikes might be needed to tame inflation.

Major banks are now factoring in rate hikes in both September and November after Reserve Bank of Australia (RBA) deputy governor Andrew Hauser told the ABC that inflation and growth were too high.

“That’s why we raised interest rates three times at the beginning of this year,” Hauser told The 7.30 Report. “And the question now, frankly, for us, is: Have we done enough or is more needed?”

Hauser acknowledged the pain that further rate rises would cause, adding that current inflation was hurting Australians in many ways.

“People want inflation down. People are furious about inflation. I understand why. It’s unfair,” he said.

Hauser said the board would leave its decision on the cash rate until the 11th hour when it meets on September 28, given the inflation figures come out the day after.

“Clearly house prices are falling,” he said. “Consumers are very unhappy, frankly. Consumer confidence is low.”

AMP chief economist Shane Oliver says two further rate hikes this year could tip the economy into recession and force house prices down by up to 15 per cent.

“There is always a tipping point, and people are already struggling with mortgages,” he says, adding that two more hikes of 25 basis points this year would increase repayments on the average $600,000 mortgage by $200 a month, or $2400 a year.

It is only one month since the RBA kept rates on hold at 4.35 per cent; at the time, all four big banks forecast they would remain on hold for the rest of the year.

However, by the end of August, a surprise inflation result resurrected fears of another interest rate rise, and economists began warning rate hikes were back on the table, injecting further confusion and hesitation into the property market.

Commonwealth Bank senior economist Belinda Allen says rate increases in both September and November are now on the cards as the central bank attempts to bring inflation under control.

“Despite growth slowing in line with expectations, inflation remains too high and is proving more persistent than we had expected,” she says.

Australian consumer prices, a key measure of inflation, rose more than expected in July as fuel and travel costs increased, adding to the risk of further rate hikes.

Turning to the impact of more rate hikes on the property market, Allen says she expects a “peak to trough” decline of 9 per cent.

“The budget tax changes continue to dampen investor sentiment, and the additional interest rate hike in our forecasts will keep prices depressed,” she says.

Westpac chief economist Luci Ellis says she is factoring in a rate hike in November while an increase later this month is “not zero”, partly due to the spillover of massive investment in data centres to power the rollout of AI.

Ellis says that although the housing market is looking weaker than expected, its impact on consumer spending is more than offset by the wider boost coming from a globally driven surge in tech-related spending.

NAB chief economist Sally Auld says the bank is factoring in a 25-basis point rate hike in September and possibly another one in November.

She says the RBA appears to be losing patience with persistently high inflation and wanted to ensure it brought it under control as soon as possible. She said the risk of further rate hikes to the broader economy was a “deeper price correction in the property market.”

AMP’s Oliver says two rate hikes this year might be “overkill”, given that only a few months ago economists were talking about interest rate cuts.

Inflation driven by household spending is the main area of concern for the RBA, and the more likely scenario is a hike in September to allow it time to bring prices under control.

ANZ head of Australian economics Adam Boyton is less convinced there will be back-to-back rate hikes this year.

“I still expect there will be one in November but not one at the end of this month,” Boyton says. “I don’t think there is necessarily the urgency to go in September ahead of getting a bit more data.”

He says inflation was being driven partly due to international energy markets and domestic spending. “There’s just a bit of excess demand in the economy,” he says.

He expects the national property price correction to be just over 10 per cent, with a recovery only coming when people are convinced rates are on the way down rather than up.