The Reserve Bank of Australia has given its biggest hint yet that borrowers will wear the cost of an interest rate hike sooner rather than later as the economy roars back after COVID-19.
Releasing the minutes of its April monetary policy meeting – where the RBA kept rates on hold at the record-low 0.1 per cent – the nation's top economists agreed that economic conditions were ripe to increase the nation's cash rate.
The last time Australians saw a rise in the cash rate was more than 11 years ago in November 2010.
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"Inflation had picked up and a further increase was expected, with measures of underlying inflation in the March quarter expected to be above 3 per cent," the RBA's minutes read.
"Wages growth had also picked up but, in aggregate terms, had been below rates likely to be consistent with inflation being sustainably at the target.
"These developments have brought forward the likely timing of the first increase in interest rates."
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Currently all four of Australia's big banks predict the RBA to begin lifting interest rates in June this year – but experts are now considering a hike from as early as next month.
"RBA minutes reiterated its hawkish pivot: no more patience and the pick up in inflation wages have brought forward rate hikes," said AMP's Chief Economist Dr Shane Oliver.
"Our base case remains for a June hike but it could come in May especially if there is another blowout Consumer Price Index next week and the first move could be + 0.4 per cent rather than + 0.15 per cent."
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Despite the looming threat of an interest rate hike drawing near, economists forecast that any tightening of Australia's monetary policy is unlikely to lead to a housing crash.
Dr Oliver said he now predicts house prices to fall up to 15 per cent over the next two years, but borrowers will be largely safeguarded.
"House price crash calls have been a dime a dozen over the last two decades, only to see the boom roll on after periodic dips," Dr Oliver said.
"So, the experience since the early 2000s warns against getting too bearish. Some would see a 15 per cent fall in prices as a crash, but I take it to mean prices falling 25 per cent or so.
"Our assessment is that while a crash is possible, it is unlikely unless we see very aggressive rate hikes – say taking the cash rate to 4 or 5 per cent – or much higher unemployment, driving a sharp rise in defaults and forced property sales."
