Interest rates: ANZ predicts two hikes this year, taking the cash rate to highest level in 18 years
ANZ has become the first big four bank to tip the Reserve Bank raising rates to the highest level since late 2008.
ANZ is now predicting the Reserve Bank will hike rates in September and November - taking the cash rate to the highest level in 18 years as result of the worsening Middle East conflict.
Australia’s big four banks are now all tipping a rate hike next week that would take the cash rate to a 15-year high of 4.6 per cent but ANZ is the first among them to have it reaching 4.85 per cent by Melbourne Cup day for the first time since late 2008.
Crude oil prices last week climbed above $US100 a barrel for the first time since May, after Iran-backed militias destroyed Saudi Arabia’s East West pipeline connecting the Persian Gulf with the Red Sea.
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By continuing you agree to our Terms and Privacy Policy.ANZ economists Adam Boyton and Jack Chambers said the RBA would no longer be treating this as a one-off effect on inflation.
“The ongoing escalation of the conflict in the Middle East and the tendency of the RBA to view the resultant increase in oil prices as much more of an inflationary shock than a growth shock suggests that a single 25 basis point rate hike in November, after the quarterly consumer price index data are released, is no longer the most likely outcome,” they said.
“We also view a move in September as an addition to, rather than a replacement for, a November rate hike.
“We are adding another rate hike to our forecasts. We now expect the RBA to increase the cash rate by 25 basis points in September, in addition to the 25 basis point rate hike we already have in for November.”
Two more hikes by early November would take the cash rate to 4.85 per cent which would be the highest level since December 2008 and add $243 to monthly repayments on an average new mortgage of $731,000 as variable mortgage rates edged above 7 per cent for the first time since the global financial crisis.
This would also mean five hikes this year, which would see borrowers paying $597 more a month in servicing their mortgage, adding up to $7164 over the year.
ANZ is the first of the big four banks to be predicting two more hikes in 2026, with Westpac, NAB and the Commonwealth Bank predicting an increase on September 29.
It updated its forecast hours after the Commonwealth Bank, Australia’s biggest home lender, brought forward the next hike to this month instead of November.
“The risk sits with the need to tighten monetary policy further beyond September given the inflation backdrop but it is not an easy decision to push monetary policy further into restrictive territory,” CBA’s head of Australian economics Belinda Allen said.
The futures market now sees a hike as an 86 per cent chance.
July’s inflation rate of 3.5 per cent was above the RBA’s 2-3 per cent target for the 12th straight month and the August figure, due out on September 30, is expected to show more price pressures considering the Federal Government’s fuel tax relief expired earlier that month.
Slowing economic growth, as a result of this year’s rate rises, is expected to see the Reserve Bank cut rates next year.
“Our views on the easing cycle are unchanged. We expect a 25 basis point rate cut in November 2027 and a following 25 basis point rate cut in February 2028,” the ANZ economists said.
Those cuts would take the RBA cash rate back to the present level of 4.35 per cent, but that relief would not undo the increases in February, March and May.
