The Reserve Bank is poised for another knife’s edge interest rates decision on Tuesday, with key forecasters predicting a hike amid fears the battle against inflation is proving too slow.

Depending on which way central bankers swing, the cash rate target will either stay at 4.1 per cent or rise to a decade high of 4.35 per cent, which would pile more pressure on families.

Another 0.25 percentage point hike would add a further $78 to monthly repayments on a typical $500,000, 25-year home loan – building on more than $1200 since rate hikes began last year.

That would throw thousands more families into mortgage stress, according to Roy Morgan, while also increasing the risk of an economic downturn later this year as shoppers struggle.

It comes as major banks continue to pass on higher rates to customers, with Commonwealth Bank and Westpac raising variable rates by up to 0.15 percentage points in late June, despite having already passed through increases earlier in the month after the RBA hike.

It’s all in the name of curbing sky-high inflation, which is now falling but not fast enough to assuage RBA fears that rising wages growth and low productivity will derail their plans.

Those same concerns sparked a surprise mortgage bill squeeze last month, prompting economists to revise their forecasts for the RBA’s rate peak, foreshadowing two more hikes.

Westpac, ANZ and NAB are now all predicting the cash rate target will rise to 4.6 per cent by August – which implies central bankers will unveil a rate increase on Tuesday.

Markets are pricing in rates at 4.3 per cent by August, which is less than major forecasters.

But Westpac chief economist Bill Evans says the RBA regards higher rates as necessary to ensure inflation falls to target by mid-2025.

More pain is on the way for mortgage holders, experts expect. Photo: TND

He predicts these interest rate hikes will cause a per capita recession in 2023 and 2024.

“We’re expecting you will see negative [GDP] growth in the first quarter of next year,” he said.

ANZ Bank’s senior economist Adelaide Timbrell offered a similar view, saying ongoing strength in the jobs market would push the RBA towards a rate rise.

“Another increase in July is the most likely outcome,” Ms Timbrell said.

Other side of the argument

However, monthly inflation figures published last week showed inflation is falling, with monthly price growth at its lowest level since April 2022.

That could push the RBA towards a pause in July.

But because inflation remains well above the central bank’s 2 to 3 per cent target band many experts still expect another hike.

Commonwealth Bank senior economist Belinda Allen said meeting minutes from the RBA’s June call suggested the central bank will still be concerned about upside inflation risks in July.

“Upside risks to the inflation outlook ultimately drove the hike [in June], “ Ms Allen said.

“An RBA 25bp [basis point] rate increase in July now looks like a 50-50 proposition … there is also a risk of a hike at both meetings [July and August].”

NAB chief economist Alan Oster said higher rate forecasts have also pushed back the timeline for rate cuts, which are unlikely until later in 2024.

“We now see the cash rate rising to 4.6 per cent, and we expect it to remain well into restrictive territory until mid-2024 when the RBA begins to ease back towards neutral,” he said.

“Of note is that around 75bps [basis points] of hikes that the RBA has delivered are yet to flow through to mortgage payments.”