Millions of mortgage holders struggling under the weight of relentless interest rate hikes were left high and dry in last night's budget with little support for skyrocketing repayments – but one small detail could mean the end of constant increases is in sight.Despite the overwhelming majority of economists, major banks and financial markets predicting that the Reserve Bank of Australia (RBA) would pause interest rates in May, the central bank made the shock decision to add another 25 basis point hike.But hidden within the budget's outlook for the domestic economy was a prediction that Australia's interest rates will remain stable at the current level of 3.85 per cent before then falling.TWO-MINUTE GUIDE: What's in it for me?
Millions of mortgage holders could see some reprieve under Treasury forecasts (Adobe Stock)"Financial markets and market economists now expect the cash rate to remain at 3.85 per cent until early 2024, before gradual cuts back to 3 per cent by June 2025," the outlook reads."This is slightly above expectations at the October Budget, which will put a further drag on consumption and dwelling investment activity once the backlog of work is completed in the near term."If realised, mortgage repayments for millions of borrowers have likely reached the peak in the welcome relief for homeowners struggling during the cost of living crisis.FREE DOCTOR VISITS: The changes to bulk billing explained EXPLAINED: JobSeeker goes up by $40 – here's exactly who will get itSince May last year – when interest rates were just 0.1 per cent – the average monthly repayment on a $600,000 loan has increased by $1351.Despite the federal government's forecasting for the cash rate to have peaked, the decision-making impacting millions of borrowers remains in the hands of the RBA.In the central bank's recent Statement on Monetary Policy, the RBA forecasted inflation has peaked in Australia but remains on a narrow path due to the labour market tightening and slowing productivity growth.WINNERS AND LOSERS: Who gets the most?In the federal budget outlook, Treasury similarly forecasts that inflation has reached its peak and will fall to the target range by 2024 to 2025.Inflation is expected to fall from 7 per cent in the recent March quarter to 6 per cent in June and before a more drastic plunge to 2¾ per cent in June 2025.This is in line with the RBA's inflation target of between 2 to 3 per cent.Chalmers has made it clear throughout the federal budget not to enact expansionary measures that could impact inflation and therefore lead to the RBA tightening rates further to the despair of mortgage holders."It is especially important that fiscal policy not add unnecessarily to aggregate demand when inflationary pressures are acute," budget papers say.COST OF LIVING: The measures that will offer the most relief
RBA Governor Philip Lowe has foreshadowed interest rates could keep rising. (Michael Quelch)Despite inflation having peaked according to both the central bank and government, the RBA has still warned further interest rate hikes may be on the cards."The Board's priority is to return inflation to target," the bank said."High inflation makes life difficult for people and damages the functioning of the economy."And if high inflation were to become entrenched in people's expectations, it would be very costly to reduce later."Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve."Finance professor at UNSW Mark Humphries-Jenner told 9news.com.au although we are "at the mercy of the RBA", the Treasury forecasts seem to be the likely path of the central bank."In terms of interest rates, it is likely they will remain somewhat high for the short term to balance the main drivers including some portions of the community who are cashed up without mortgages and those facing the mortgage cliff," he said."The RBA needs to balance these two but will need to reduce rates in the not-too-distant future."ENERGY BILL RELIEF: Who gets $500 off?
Key announcements from the 2023-24 federal budget. (Nine/Orla Maher)Humphries-Jenner said keeping rates too high could lead to a number of Aussies defaulting on their mortgages which will place pressure on the economy.He added Treasury forecasts are conservative but look likely."Any more rate hikes do run a significant risk of damage to the economy," he said.With the US Federal Reserve looking likely to near the end of the rate hike cycle, the RBA may be on a similar path, he added.Although the central bank shocked market expectations with the May interest rate rise, Humphries-Jenner said the RBA is less likely to do so in June.In pictures: The federal budget newspaper front pagesView Gallery The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
