Borrowers could be hit with at least eight consecutive official interest rate hikes in 2018 and 2019 if the economy rebounds as the Reserve Bank of Australia anticipates, says former central bank board member John Edwards.
According to an article penned by Dr Edwards for the Lowy Institute, normalisation means lifting the offi cial cash rate by 2 percentage points to 3.5 per cent. That would take the average mortgage rate from around 5.3 per cent to well over 7 per cent.
That could add more than $640 to the monthly repayments for a family with a 25-year $400,000 mortgage, or $8,200 a year.
“If inflation does indeed return to 2.5 per cent, as the bank now expects, if growth does indeed return to 3 per cent ‘within a few years’, as the minutes of the June board meeting predict, if the world economy is indeed picking up, then a policy rate of 1.5 per cent is too low,” Dr Edwards writes.
“It seems to me that something like eight quarter percentage point tightenings over 2018 and 2019 are distinctly possible, if the RBA’s economic forecasts prove correct.