Westpac's economists finally joined their big bank peers this week, predicting the Reserve Bank of Australia is now likely to lift interest rates this year, instead of staying on hold.
Chief Economist Luci Ellis, previously an RBA Assistant Governor, says the main reasons for the shift are the growing evidence of a more resilient household sector, even as consumer sentiment tumbles, and a larger-than-expected boost to the economy from the data centre boom.
Last week’s official GDP numbers highlighted that consumers are still spending to a degree, noting the take-up of electric vehicles as a contributor. Some travellers redirected their spending locally because the war in the Middle East made it harder to leave Australia for the European summer.
Westpac joins Commonwealth Bank Australia and ANZ in pencilling in a 25 basis point increase in the official cash rate in November, while NAB thinks it’ll likely come at the next RBA meeting at the end of this month.
Inflation above the Reserve’s target of 2-to-3 per cent is also a key influence, although the next official read on consumer prices will arrive the day after the central bank’s board meeting in September.
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Canstar says such a move would lift the monthly repayment on a $600,000 loan with 25 years remaining by $91. This would take the total increase for the year to $363 across a total of four rate hikes.
It’ll further squeeze borrowers, many of whom are seeing their property values decline.
The ABS said this week that combined residential property values in Australia fell by around $34 billion in the June quarter, marking the first decline in four years, after a surging 30 per cent since September 2022.
“Clearly it is an influence on households,” Westpac Senior Economist Matt Hassan told SBS On the Money. “It’s their major asset holding, and it reflects the turnaround we’ve seen in the market; since about February we’ve seen price declines.”
“To get a decline in the total wealth holdings of residential property means the declines need to be larger than the new building that you’re adding to the stock of dwellings.”
That was indeed the case.
The ABS said the number of residential dwellings rose by 54,400 in the quarter.
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