Another 50bps rate hike? What to expect from the RBA November meeting

Three of the big four banks are predicting another 25 basis point cash rate hike on Tuesday at the Reserve Bank of Australia’s next Board meeting to set the cash rate. However, Westpac is tipping another double hike of 50 basis points, with a new expected cash rate peak of 3.85%. So, what will the impact of yet another increase mean for Australian mortgage holders?

Commonwealth Bank of Australia (CBA): +25 basis points

CBA head of Australian economics, Gareth Aird, said that a 25-basis point hike was likely for the November 2022 Board meeting. 

“We expect the RBA to raise the cash rate by 25bp at the November Board meeting,” Mr Aird said.

CBA has since increased its forecast terminal cash rate from 2.85% to 3.10% by December this year.

CBA cash rate forecast

Westpac: +50 basis points

The sole dissenting voice among Australia’s major banks is Westpac, which has stated that the RBA is likely to hike by 50 basis points in November off the back of yesterday’s inflation data.

Westpac chief economist, Bill Evans, now predicts that the cash rate will peak at 3.85% by March 2023.

“We now expect the Reserve Bank Board to raise the cash rate by 50 basis points in November for a terminal rate of 3.85% by March, revised up from 3.6%,” Mr Evans said.

“The September quarter inflation report has come as such a major surprise that we think the Reserve Bank Board will decide to raise the cash rate by 50bps at the next Board meeting on November 1.”

Westpac still states that the RBA should start cutting the cash rate again slowly over the course of 2024.

Westpac cash rate forecast

NAB: +25 basis points

NAB maintains that for the rest of 2022, we can expect two more 25-basis point cash rate increases in November and December – although it isn’t ruling out the possibility of a 50-basis point hike.

Similar to CBA, NAB predicts that the cash rate will hit 3.10% by the end of the year. However, it expects the peak (terminal) cash rate to sit at 3.60% by March 2023.

Following yesterday’s inflation data, NAB Group economists state that: “the RBA will need to move monetary policy into more clearly restrictive territory to ensure inflation returns to target, and as such we have revised up our terminal rate expectation to 3.6% (from 3.1%)."

“We see 25bp moves as likely, but a 50bp rise in November is possible, given today’s CPI print,” NAB Group economists said.

NAB cash rate forecast 

ANZ: +25 basis points

ANZ head of global economics, David Plank, has said that the big four bank also expects a 25-basis point increase at the RBA’s next meeting in November, and another 25-basis point hike in December.

"A 50-basis points rise in November is possible, but we think the RBA will prefer to hike more frequently than shift back to 50bp, given the reasoning behind the decision to go 25bp in October," Mr Plank said.

The latest inflation data for Q3 has also influenced the banks’ decision to increase the peak (terminal) cash rate, with an expectation it will now peak in May 2023.

“We have upgraded our RBA cash rate forecasts on the back of the upside surprise in the Q3 CPI data, adding a 25bp hike in December this year to take the peak to 3.85% in May 2023."

ANZ cash rate forecast

How could a rate hike affect Australian household budgets?

The impact of the cash rate hikes experienced in 2022 will be considerable to household budgets. Many Australian home loan borrowers who applied prior to these hikes are likely to be paying interest rates close to or above the serviceability buffer their lender tested their application on. Meaning, homeowners could be paying more in interest than they could reasonably afford.

CBA’s Gareth Aird recently said the full effects of higher interest rates were “yet to be felt in mortgage payments and the increases in the cash rate were close to the interest rate buffer applied when many current borrowers took out their loans.

“The minimum interest rate buffer that banks used when assessing the serviceability of home loan applications was 250bp above the loan rate until late last year (APRA increased the minimum interest rate buffer by 50bp to 300bp in late 2021).  The RBA has increased the cash rate by 250bp so far since May 2022 which means further rate hikes from here breach the serviceability buffer applied for many recent borrowers,” Mr Aird said.

RateCity research shows that if the peak cash rate hike forecast from Westpac were to come true, mortgage holders on variable interest rates could find themselves paying over $1,000 more each month by March 2023 than when the hikes first began.

How much more you may pay by 2023

Source: RBA average owner-occupier variable rate for existing customers, April 2022. RateCity.com.au. Note: Based on a 25-year, $500k home loan, comparing repayments with RBA average rate in April of 2.86%, versus a 375 basis point increase from continuous cash rate hikes to Westpac's predicted peak of 3.85% in March 2023. Does not factor in fees.

Sign up for RateCity’s Rate Tracker to stay up-to-date with how your bank or lender chooses to pass on the next cash rate hike. 

You may also want to consider comparing home loan options to determine if refinancing with another lender would be a better fit for your budget.

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