Table of contents
featured image
By
A A A

Big banks update RBA forecasts – how high will interest rates now go?

Economists from all four big banks now believe the cash rate will start rising this June, with Westpac and NAB the last of the major banks to bring forward their forecasts.

Westpac has updated its forecast on the back of the RBA’s monetary policy statement.

Westpac’s economic team is now predicting the cash rate hikes will start in June and hit 2 per cent by June the following year.

The bank’s previous forecast had the rate hikes starting in August and reaching 1.75 per cent in February 2024. Interest

NAB has also updated its forecast, with the first cash rate hike starting in June (previously August), while on Tuesday, ANZ’s economic team updated its cash rate forecast, bringing forward the predicted start date by three months to June.

All four big bank economic forecasts have the cash rate hikes finishing at different points.

CBA believes the neutral cash rate will be 1.25 per cent, whereas ANZ has said the cash rate will rise above 3 per cent but not until after 2023.

Big four bank forecasts: how high will the cash rate go and when?

  • CBA: hikes to start in June. The cash rate is to reach 1.25% by February 2023.
  • Westpac: hikes to start in June. The cash rate is to reach 2.00% by June 2023.
  • NAB: hikes to start in June. The cash rate is to reach 2.25% by August 2024.
  • ANZ: hikes to start in June. The cash rate is to reach 2.00% by November 2023 and peak above 3.00%, but not until sometime after 2023.

How much extra could mortgage holders be paying if Westpac’s forecasts are realised?

If the cash rate reaches 2 per cent by June 2023, as predicted by Westpac, the average owner-occupier with a $500,000 debt and 25 years remaining, could see their repayments rise by $509.

This would equate to a 22 per cent rise in monthly repayments from today to mid next year.

Westpac forecasted RBA hikes: impact on $500K home loan

  Today Mid-2023 Difference
Rate 2.92% 4.82% 1.90%
Monthly repayments $2,350 $2,859 $509

Source: RateCity.com.au. Notes: forecasts are from Westpac’s economic team. Calculations are based on an owner-occupier paying principal and interest with an outstanding debt of $500K over 25 years on the RBA's average existing customer variable rate of 2.92%.

RateCity.com.au research director, Sally Tindall, said: 

Westpac, NAB and ANZ had all brought forward their rate hike schedule on the back of Tuesday’s RBA statement.

The notable exclusion of Governor Lowe’s “prepared to be patient” mantra has raised alarm bells among economists.

Governor Lowe effectively ruled out a hike in May by stipulating he wanted to see further wages data, the next round of which is out mid-May.

However, June is a live possibility

If Westpac’s forecasts are realised, by June next year the average borrower with a $500,000 loan could see their repayments rise by $509.

To put that into context, that’s like having your car registration come up for renewal every single month.

While there’s plenty of conjecture about how high the cash rate will go, if Westpac is on the money, it could equate to a 22 per cent hike in mortgage repayments in just over a year.

That’s a steep rise, particularly for people with large loans compared to their income.

People who think they might struggle to make higher repayments shouldn’t wait until June to see whether the RBA makes its move.

Now is the time to start battening down the hatches and building up a buffer.

We're not concerned...

If you've been following Michael Yardney's blogs or his regular Property Insider videos with Dr Andrew Wilson, you'll know that we believe it will be a little while before interest rates rise.

Dr Phil Lowe has long argued that the RBA would require inflation to be sustainably in the 2-3% range before it would consider lifting rates and that "real" (after inflation) wages would have to also rise.

So currently we have a battle between a temporary spike in inflation (which is set to show up in the data over the next few months) and what might happen after the Ukraine war stops and oil prices fall, bringing down the price of petrol.

Peter Switzer wisely wrote...

The collective pressure of the media powered by some economists has everyone stressed out about rising interest rates before it’s necessary to do so.

In fact, if you’re shivering in your boots then do something about it.

After every first Tuesday of the month (except for January), the RBA Board meets, checks out the economy and decides if it needs to raise rates, drop them or keep them on hold.

Despite a lot of fear around inflation and interest rates, this month the experts on monetary policy said ‘no’ to a rate rise.

It was a very sensible decision and means the official cash rate remains at the historically low level of 0.1%.

Some analysts are looking at the high cost of living, thanks to the three Ps, and wondering when the RBA will start fighting inflation that’s in the pipeline with higher interest rates.

I reckon Dr Phil Lowe is hoping the 3 Ps are transitional and will peter out over 2022, so he won’t raise rates until he thinks the time is right.

Where are the three Ps? Try the pandemic, the petrol price and problems with the supply chain.

If the RBA is wrong and these pricing pressures remain, then by July or August we could see the RBA move to start raising interest rates.

If you are concerned...

Here's what can mortgage holders can do now before rates rise?

  • Get yourself a rate cut now before the RBA hikes start: Call your bank or broker and haggle. The average variable rate mortgage holder is paying 0.40% more than a new customer. If your bank doesn’t budge, you could be better off refinancing.
  • Make extra repayments: Paying down as much of your debt now, while your rate is still low, will help soften the blow when rates rise.
  • Prepare your budget: See where you can trim your budget to free up money to help build a buffer.
  • On a fixed rate? Set a reminder for two months before it ends so you can begin shopping around for a new loan. Fixed loans often roll over to higher variable rates unless you do something about it.

 

 

About Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).
Visit Metropole Melbourne
2 comments

Interestingly the banking economists have been very right now over the last few years haven't they?

0 replies

The RBA is going down the same path as the US Federal Reserve. They have skyrocketing inflation dancing right in front of them but they pretend its either not there or its just going to blow away. What did they think would happen after so many year ...Read full version

1 reply

Guides

Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts