Australians must brace for interest rates to rise at least three more times in 2023 as the RBA fights high inflation, according to grim new forecasts.

National Australia Bank updated its outlook for the economy on Tuesday, saying it now expects the RBA’s target interest rate to peak at 4.1 per cent in May rather than its earlier forecasts of just 3.6 per cent.

It comes as economists digest a more hawkish tone from the RBA since the New Year, with official inflation forecasts revised upwards and governor Philip Lowe warning that further rate hikes will be needed in 2023.

The cash rate target has already risen 0.25 percentage points in 2023 to a decade high 3.35 per cent, bringing the rise in monthly mortgage bills for a typical $500,000, 25-year loan to more than $900 since last May.

NAB’s new forecasts imply those bills will rise by at least another $180.

NAB economists said on Tuesday that consumer spending is likely to be more resilient to rate hikes than previously thought, meaning the central bank will need to be more aggressive in its battle against high inflation.

“The RBA’s framing of domestic inflationary pressures has clearly changed and as such, we judge it to be unlikely the Board will feel comfortable pausing [rates] before May,” NAB economists said Tuesday.

Mortgage bills to rise in triple-whammy

NAB predicts three more rate increases of 0.25 percentage points in March, April and May — after that a pause is predicted in June and July.

“We still see a strong case for the RBA to look to pause the current hiking cycle soon given the considerable tightening put in place, the ‘long and variable lags’ and the need to look through some unusual features of the post-COVID normalisation period,” NAB experts said.

“However, the RBA’s framing of domestic inflationary pressures has clearly changed and as such, we judge it to be unlikely the Board will feel comfortable pausing before May.”

The economists said headline inflation — which reached 7.8 per cent in the December quarter — has likely peaked, but a “significant unknown” is how quickly price rises will fall back into line with the RBA’s target band.

“The Q4 CPI [December quarter consumer price index] showed that price increases remain broad-based,” NAB economists said.

“Despite the expectation of an easing in goods inflation, the easing in upstream cost pressures is yet to flow through to consumer prices.”

The RBA revised its inflation profile upwards slightly late last week and now predicts it inflation will be higher for longer than previously thought.

As things stand, the central bank doesn’t expect headline inflation will fall back into its 2 to 3 per cent target band until at least mid-2025.

Over that period GDP growth is tipped to fall, unemployment is expected to rise and wage growth is forecast to peak at more than 4 per cent.