Nine Advisory's Interest Rate Update - February 2022

We’re already in February and in less than 2 months since the start of 2022, the big 4 banks have all hiked their fixed rates. In fact, Westpac has hiked twice this year! 

The official cash rate has been kept at a record low 0.1 per cent – for now – while the Reserve Bank of Australia (RBA) has confirmed it will halt the bond buying program that helped to support the economy through the Covid-19 crisis.

Until late last year, the RBA was indicating that a rise in the cash rate would not occur until 2024, before shifting its stance to possibly 2023.

However, the Australian Bureau of Statistics reported the economy added 64,800 jobs in December, lowering the unemployment rate to 4.2% from a previously reported 4.6% in November. This was followed by reports that the consumer price index (CPI) jumped 1.3 per cent over the last three months of 2021 to be 3.5 per cent higher over the year.

Rising inflation and a sharp drop in the unemployment rate is expected to see the Reserve Bank of Australia recalibrate its thinking on the interest rate outlook for this year. Financial markets are pricing in the risk of a rise in the cash rate from a record low 0.1 per cent by mid-year, while economists appear to be gravitating to the August board meeting.

RBA Governor Philip Lowe recently said the board is prepared to be patient as it watches how the various factors affecting inflation in Australia play out. He admitted the red-hot inflation roiling financial markets had exceeded his predictions, prompting him to upgrade the central bank’s economic forecast and set the scene for a potential 2022 rate hike.

Current Interest Rates (Big 4)

What to expect in 2022?

The unemployment rate is forecast to further fall to 4% by June, compared with its 13-year low of 4.2% currently. It is then expected to decline even further to 3.75%, cracking the 4% barrier for the first time in 50 years

Financial markets are predicting an increase this year starting in May, while economists see a move more likely in August or September, with a further rise before the end of the year.

CBA’s CEO, Matt Comyn expects rates will go up quite slowly and they expect the strong economic momentum to carry through to at least the end of 2023 and feel very optimistic about the outlook for the Australian economy.

Westpac recently announced it expects the cash rate to reach 1.75 per cent by 2024 following a series of hikes. Canstar analysis shows if the cash rate rose to 1.75 per cent, the average variable interest rate would increase from 3.04 per cent to 4.69 per cent.

If you’re looking to take up a new loan or even refinance, act fast before the rates continue going up. Give Darren a call on 0452 339 778 or email him at [email protected] to discuss what options you have available.