Consumers expecting the worst as rate rise worries see abrupt increase

An unexpected drop in confidence saw consumer expectations for variable mortgage rates jump 12.8 per cent in July. According to the Westpac-Melbourne Institute’s Mortgage Rate Expectations Index, this is “the steepest monthly rise since we began running this question in every survey at the start of 2022.”

The historical average figure of the index is 143.8. In the last three months, however, there has been a 30 per cent surge, with a below-average read of 122.8 in April to 159.2 in July.

What is being dubbed a “sudden hawkish turn” is reportedly the most abrupt change seen in the last seven years. Currently, just under 60 per cent of consumers are expecting a mortgage rate rise over the next year.

This lack of confidence contrasts the views of economists, with Bendigo Bank’s chief economist David Robertson predicting rates to remain unchanged throughout the year and claiming we’ll see a cut sometime in 2025.

“While the May data does increase the probability of another RBA hike in the coming months, our key takeaway from the data was that it further defers RBA cuts, rather than necessarily implying another rate hike,” said Roberston.

“As we’ve outlined here and in our Business Insights website since early 2023, we see relief via RBA rate cuts as a 2025 event, so we’re not surprised that markets (and most economists) are no longer pricing in cuts this year, but the market is now assigning around a 50 per cent probability to another hike which is a long bow to draw on a single monthly CPI read.

“Nevertheless, we have pushed back our first RBA cut from next February to May 2025, given the even slower progress for disinflation than hoped.”

Clearly consumers aren’t as optimistic as the economists, with Westpac-Melbourne Institute’s head of Australian macro-forecasting Matthew Hassan reinforcing just how severe inflation is affecting Aussies.

“The message here seems to be that the main concern in July was around how high inflation and rising interest rates may impact parts of the economy that are already struggling,” said Hassan.

“The Reserve Bank Board next meets on August 5–6. While we still expect the Board to remain on hold at this meeting and the next, this view is contingent on inflation continuing to decline broadly in line with our (and the RBA’s) expectations. The June quarter CPI release and labour market data will be important inputs into the Board’s near-term decisions.”

[Related: ‘RBA cash rate will remain unchanged throughout the year’, says Bendigo Bank]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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