Westpac expects the bank to lift rates by 0.4 percentage points,from the historic low of 0.1 per cent to 0.5 per cent,when it finally starts tightening monetary policy. The bank had previously anticipated the bank taking rates to 0.25 per cent,chief economist Bill Evans said.
“However,given our expectations of a rapid further increase in underlying inflation and a forecast fall in the unemployment rate for April to a 48-year low of 3.8 per cent,we expect the board will decide on a bolder initial lift in the cash rate,” he said.
The last time the RBA lifted rates by more than a quarter percentage point was in February 2000 when the bank took the then cash rate to 5.5 per cent. Within a year,it started cutting rates to avoid the dotcom global recession that Australia narrowly avoided.
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If banks passed on in full a 0.4 percentage point increase,the repayments on an $800,000 mortgage would lift by $168 a month.
Financial markets,after inflation data and comments from the head of America’s central bank,on Friday aggressively tightened expectations of rate rises here. They now put the chances of a rate increase at the RBA’s May 3 meeting at 50-50.
By year’s end,they believe the cash rate will be at 2.25 per cent and by the end of next year at 3.5 per cent.