If you're a homeowner who breathed a sigh of relief when the Reserve Bank paused its interest rate hikes in March, I have some awkward news. That pause probably won't last until May.
The RBA's decision to hold the cash rate at 3.85 per cent this month was meant to buy time, giving the board a chance to assess whether last month's 25-basis-point hike was enough to tame inflation. Fair enough. But here's the problem: all four of Australia's major banks have now flipped their forecasts, and most now expect the RBA to hike again in May when the next batch of inflation data arrives. Your mortgage relief, in other words, might just be a two-month pause.
To understand why the banks think May is the likely next move, you need to look at a genuine economic puzzle the RBA is sitting with. Unemployment is low at 4.1 per cent. Jobs growth, though, is weakâjust 17,800 positions added in February. Yet wages aren't behaving the way you'd expect from that data. Wage growth sits at 3.4 per cent annually, which is above what the RBA considers acceptable. More peculiar still, the public sector is running well ahead: public servants' wages are rising at 4.0 per cent, while the private sector is stuck at 3.4 per cent.
This creates what economists call a misfire. The RBA wants to see wages moderate as inflation comes under control. Instead, wages have barely budged despite the central bank's tightening. That's troublesome because persistent wage growth can feed back into inflation, creating a self-sustaining cycle that becomes harder to break. It's one reason why the banks think pausing for a single month won't be enough.
CBA, Australia's largest mortgage lender, has now forecast a second hike to 4.10 per cent in May. Westpac has followed suit. The reasoning is straightforward: when inflation data for the March quarter arrives late next month, it will likely show enough price pressure to justify another dose of rate medicine. For homeowners already under pressure, that's grim. Your mortgage payments would climb further, at a time when household budgets are already tight from electricity bills, insurance premiums jumping by up to $1,200, and general cost-of-living pressures.
The RBA's dilemma is real, though, and worth acknowledging. Employment growth is soft. Private sector wages aren't surging. There's a case for patience. But the public sector wage data complicates that story, and the central bank has been burnt before by moving too slowly on inflation. Better, perhaps, to act a touch earlier than a touch later.
In plain English, this means your interest rate pain probably isn't finished. The March pause feels like relief because it is relief. But if you're planning your finances, budget for higher rates in the second half of the year. Your bank certainly is.