When will interest rates stop rising?

The Reserve Bank of Australia (RBA) has once again increased the cash rate, leaving millions of Australian mortgage holders likely asking the question: how many more rate hikes do they have to endure?

It’s no secret that after twelve increases to the cash rate since April 2022, borrowers are struggling to afford their mortgage in the current higher-rate environment. And for the budding first time buyers holding out for the “end of the rate hike cycle” before they purchase their first home, this higher-rate environment has not been a walk in the park. 

So, if you’re counting down the days, weeks or months until this cycle of tightening stops, you may want to know when the experts think that interest rates will stop rising. 

When the big four banks think rate rises will stop

Prior to today’s hike, only two of the big four banks predicted that we’d even experience another rate hike in 2023. ANZ economists forecast that we’ll see the cash rate peak at 4.35% by August 2023. However, today’s hike came to the surprise of some major bank’s economists. 

Unfortunately, when it comes to pinpointing when rate hikes will stop, most experts thought they’d already had. ANZ suggested two more cash rate hikes in 2023, so it may be the case that today’s increase isn't the last for 2023.

Big four bank’s cash rate forecasts (announced prior to today's hike)

• CBA: Peak of 3.85% in May 2023, then dropping to 2.60% by August 2024
• Westpac: Peak of 3.85% in May 2023, then dropping to 2.10% by May 2025
• NAB: Peak of 4.10% by July 2023, then dropping to 3.10 by July 2024
• ANZ: Peak of 4.35% by August 2023, then dropping to 4.10% by November 2024

However, there is no guarantee these forecasts will be accurate, as it is ultimately up to the RBA to decide as per the latest economic indicators.

The cash rate is typically increased in response to macroeconomic factors, like inflation, unemployment and wage growth. Most significantly, rising inflation has put pressure on the RBA to increase interest rates to reduce spending and slow the economy. The theory is that when the RBA increases the cash rate, consumers and businesses are less likely to borrow funds, decreasing spending. When spending slows, so too should economic growth and therefore inflation.

Last week, the Australian Bureau of Statistics released its latest monthly inflation data, which saw the monthly Consumer Price Index (CPI) indicator rise 6.8% in the twelve months to April 2023 - a 0.5% month-on-month increase in annual inflation from March. This means that despite ten increases to the cash rate at that point, the rate of inflation was still not under control. 

For the last year, rising inflation levels have been driven by several factors, including global supply chain issues as well as global conflict leading to rising energy and fuel prices. As for the twelve months to April 2023, The most significant contributors were increased costs in the areas of housing (+8.9%), food and non-alcoholic beverages (+7.9%), transport (+7.1%) and recreation and culture (+6.%).

The RBA is guided by these global factors, as well as inflation results in Australia. Regardless of what the experts say, the RBA will be monitoring these factors closely to look for signs of easing before putting the brakes on cash rate hikes.

How to give yourself a rate cut in a time of rising rates

If you’re already struggling to repay your mortgage at a higher rate, it may be worth considering giving yourself a rate cut. 

There are a few ways available for borrowers to do this, so be sure to compare your options carefully against your specific financial situation before proceeding.

• Use your home loan features –Features like an offset account and a redraw facility can do more than be your rainy-day fund. Any cash that goes into these features works to reduce the interest charged on your repayments. The more you deposit into your offset account, for example, the more you could reduce your interest charges.
• Ask for a lower rate –If you don’t ask you don’t get, and you could be surprised how willing your lender is to play ball if you know what to say. Lenders often offer lower rates to new customers as an incentive to sign up, so find out what your lender is offering and ask that they match this. Follow our helpful guide on negotiating a better home loan rate for more information.
• Refinance –One way you can give yourself a rate cut is to switch to a lower rate home loan. Use comparison tools, like rate tables and Repayment Calculators, to narrow down options that suit your financial situation and budget. If you’ve only recently purchased your home you may not have reduced your equity enough that this could be worthwhile, so do your research before you switch.

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