Higher than expected inflation points to more RBA hikes – could the cash rate get to 3.85%?

Borrowers could be hit with even more RBA hikes than previously expected with annual headline inflation clocking in at 7.3 per cent in September.

According to the ABS, this is the highest annual rate since 1990.

The RBA has said it’s prepared to keep raising the cash rate to bring inflation back down to the target range of between 2 and 3 per cent.

On the back of today’s higher than expected inflation figures, three of the big four bank economic teams have increased their cash rate forecasts. ANZ now expects a peak of 3.85 per cent.

November 0.25% point hike a near certainty

All signs are now pointing to a seventh interest rate rise in a row when the Board meets next Tuesday, with a 0.25 percentage point increase most likely.

That would take the cash rate to 2.85 per cent, the highest rate since the April 2013 meeting.

RateCity.com.au analysis shows another 0.25 percentage point rise would mean the average borrower with a $500,000 loan before the hikes started in May could soon be paying a total of $760 more a month.

0.25% HIKE IN NOVEMBER: Increase in monthly repayments

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

How many more RBA rate hikes are ahead?

This afternoon, three of the big four banks increased their cash rate forecasts, with CBA and ANZ raising their peaks by 0.25 percentage points, while NAB has increased its peak by 0.50 percentage points.

Westpac has so far not amended its cash rate forecast following the release of today’s inflation figures.

Big four bank cash rate forecasts

• CBA: +0.25% in Nov, +0.25% in Dec, peaking at 3.10%. Two 0.25% cuts in Aug and Nov 2023.
• Westpac: +0.25% in Nov, +0.25% in Dec, peaking at 3.60% in March 2023. Four 0.25% cuts in 2024.
• NAB: +0.25% in Nov, +0.25% in Dec, peaking at 3.60% in March 2023.
• ANZ: +0.25% in Nov, +0.25% in Dec, peaking at 3.85% in May 2023. Two 0.25% cuts in 2024.

How much could monthly repayments rise in total?

If ANZ’s forecast is realised, analysis from RateCity.com.au shows the average borrower’s monthly repayments could rise in total by $1,058 (May-22 to May-23).

If CBA’s more moderate forecast is realised, and the cash rate peaks at 3.10 per cent in December, the average borrower’s monthly repayments could rise in total by $834.

Loan sizes are based on a borrower’s debt at the start of the hikes, calculating the total increase from 1 May 2022 to the peak.

Total increase to repayments 1 May 2022 to peak

Source: RateCity.com.au. Calculations are estimates and repayments are for an owner-occupier paying principal and interest over 25 years. Starting rate is the RBA existing variable customer rate of 2.86% in April 2022 and big four bank cash rate forecasts are applied.

RateCity.com.au research director, Sally Tindall, said: “It’s going to be a tough Christmas for many families with two more rate hikes knocking on the door at the same time inflation is set to peak.”

“Inflation isn’t going away without a fight. The RBA is likely to have to throw more firepower at it than it may have first anticipated,” she said.

“It’s not surprising to see CBA, NAB and ANZ increase their cash rate forecasts on the back of today’s higher than expected inflation figures.

“ANZ economists believe the cash rate could climb by another 1.25 percentage points by May next year – this would see official rates rise by 3.75 percentage points in just over a year.

“If this happens, the average borrower with a $500,000 debt at the start of the hikes could be looking at a total increase in their monthly repayments of over $1,000. That’s not exactly spare change they’ll be scraping around for month after month.

“If you’ve got a home loan, sit down and work out what your budget would look like if rates rose by another 1 to 1.5 percentage points. While there’s no guarantee the cash rate will climb this high, now is the time to prepare,” she said.

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