Westpac joins big four banks in tipping November rate rise as consumer confidence falls
Westpac has become the last of Australia’s big four banks to forecast another interest rate rise this year, tipping the Reserve Bank of Australia to lift the cash rate by 25 basis points to 4.6 per cent at its November meeting.
The revised forecast comes as new figures show consumer confidence has fallen back towards the deeply pessimistic levels recorded earlier in the year.
The Westpac–Melbourne Institute Consumer Sentiment Index fell 5.2 per cent in September to 84.4 points, down from 88.9 points in August. The result reversed much of the previous month’s 6 per cent increase and left the index below the 100-point level, where pessimists outnumber optimists.
Westpac’s Head of Australian Macro-Forecasting, Matthew Hassan, said higher fuel prices and renewed concerns about interest rates had contributed to the fall in sentiment. Confidence among mortgage holders fell particularly sharply, while consumers also became less willing to make major household purchases.
The change in Westpac’s forecast means all four major banks now expect at least one further rate rise. By late August, CBA and NAB had joined ANZ in revising their forecasts following stronger-than-expected inflation data. CBA and ANZ forecast a November increase to 4.6 per cent, while NAB expected the Reserve Bank could move as early as September, with a further November rise also possible.
Westpac had previously expected rates to remain on hold. On September 9, the bank revised its forecast, with chief economist Luci Ellis saying stronger economic data pointed to more persistent inflation pressures. Westpac now considers a November increase its base case, although it says an earlier move cannot be ruled out.
The July inflation figures were a key factor behind the shift. Australian Bureau of Statistics data showed the Consumer Price Index rose 1 per cent during July, while annual inflation was 3.5 per cent. The Reserve Bank’s preferred underlying measure, trimmed mean inflation, rose 0.5 per cent during the month and remained at 3.6 per cent annually.
For households with a mortgage, even a small rate increase can affect monthly repayments. Using ASIC’s MoneySmart mortgage calculator assumptions for a principal-and-interest loan, a $600,000 mortgage over 30 years would increase by about $92 a month if the interest rate rose from 5 per cent to 5.25 per cent. Actual repayments would vary depending on the loan balance, interest rate and lender.
The Reserve Bank’s November Monetary Policy Board meeting is scheduled for November 2 and 3, with the decision to be announced on November 3.
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