Will rate hikes continue in 2023? Or could we start seeing cuts?

The Reserve Bank of Australia (RBA) has increased the cash rate in its December meeting of Monetary Policy. Homeowners will no doubt be wondering if increases to interest rates will continue into 2023, or if cuts are on the horizon.

Today the RBA hiked the cash rate by 25 basis points to 3.10%. This is the eighth month in a row of cash rate hikes, and home loan borrowers are undoubtedly feeling the pressure. 

Some major banks are tipping that rate hikes will continue into early 2023. However, relief is expected to arrive for homeowners, with the next rate cut forecast for late 2023 or late 2024.  

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Rate hikes to carry into 2023, cuts tipped for 2024

Big four bank’s cash rate forecasts

• CBA: rate hikes until December 2022, then cuts beginning in November 2023
• Westpac: rate hikes until May 2023, then cuts beginning in November 2024
• NAB: rate hikes until March 2023, no rate cuts forecast
• ANZ: rate hikes until May 2023, then cuts beginning in November 2024

Out of the big four banks, only CommBank expects today’s increase to be the last cash rate hike for some time. The other big banks have predicted that rate hikes will continue until either March or May 2023. 

CommBank is also the only major bank predicting rate cuts could commence as early as November 2023. Both Westpac and ANZ have suggested cuts could commence in November 2024, with NAB not forecasting any cuts in the next two years.

Why are interest rates still increasing?

In the minutes of its November 2022 meeting, the RBA board outlined the major factors for its decision to hike the cash rate. The Australian economy is being influenced by both domestic and international issues, including lockdowns in China, higher energy prices in Europe, and rising retail sales in Australia. 

One of the most significant driving forces has been rising inflation levels. Global supply chain issues, the Russian war in Ukraine and damage to crops from natural disasters have caused the price of goods like groceries, petrol, and energy bills to skyrocket in 2022. This has resulted in central banks across the globe hiking their benchmark rates in response.

The Australian Bureau of Statistics’ monthly Consumer Price Index (CPI) indicator for October showed that inflation fell from 7.3% in September 2022 to 6.9%. While inflation easing slightly is optimistic news for homeowners, it is still too high, as the RBA’s target band for inflation sits around 2-3%.

The good news is that this dip could allude to inflation levels reaching a peak. If inflation levels continue to decrease into 2023, it’s likely that the RBA will pause its harsh cash rate hikes, or even move to cut the cash rate again.

Without a crystal ball it’s hard to definitively say how the next two years will look for home loan interest rates. These forecasts are subject to change at any time, as dictated by these international and domestic factors.

However, one thing is for sure; homeowners will be relieved to know this is the last cash rate change of the year, as the RBA does not meet in January.

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