Have we already seen the last cash rate increase?

Today the Reserve Bank of Australia left the cash rate on hold at 4.10%. Millions of homeowners are likely wondering if more cash rate hikes can be expected, or if we’ve already seen the last hike?

Rising interest rates have put significant pressure on the household budgets of millions of homeowners since this cycle of rate hikes began in May 2022. With the cash rate rising from 0.10% to 4.10% in this time, this accounts for hundreds, if not thousands of dollars more in mortgage repayments for everyday Australians.

So, what do the experts think? Some of the big four bank economists have predicted that the cash rate has already peaked, however some have tipped that another hike could happen in 2023. 

The last cash rate hike according to the big banks

Big four bank’s cash rate forecasts

• CBA: Peak of 4.35% by August 2023, then dropping to 3.35% by September 2024
• Westpac: Peak of 4.35% by August 2023, then dropping to 3.60% by December 2024
• NAB: Peak of 4.60% by September 2023, then dropping to 3.10% by December 2024
• ANZ: 4.10% by June 2023, then dropping to 3.85% by December 2024

Keep in mind that these are just predictions accurate at the time of publishing, and that the big banks are subject to change these forecasts.

Today’s pause was in line with the prediction of ANZ, which has already stated that an extended pause is “more likely” than another hike in 2023. Meaning, the cash rate may have already peaked.  

Economists from CommBank estimated that today’s announcement would be a hike, so it remains to be seen if they think the cash rate has now peaked. However, while NAB did tip a pause for today, it has also suggested that one or two more hikes could occur in 2023.

This means that without a crystal ball, it’s hard to know whether or not this is the end of this cycle of tightening the cash rate. 

What does today’s pause mean for borrowers?

Budget relief for homeowners

Put simply, a pause to the cash rate means that banks and lenders should ideally not be increasing variable interest rates today.

And if we have seen the last cash rate hike, anyone with a mortgage on a variable rate may finally have time to let the dust settle on over a year of interest rate increases and higher mortgage payments. The cash rate peaking should offer some relief to mortgage holders that the worst is over.

That being said, it’s worth noting that many lenders still hike interest rates out-of-cycle with the Reserve Bank’s cash rate for new customers. If you’re considering refinancing anytime soon, it may be worth factoring this into your interest rate comparison. 

Inflation levels are slowing

The cash rate has been lifted over the last year in an effort to help slow rising inflation levels. The other good news for borrowers is that a pause to the cash rate may indicate that economic conditions are improving. 

The latest quarterly inflation data from the Australian Bureau of Statistics showed that annual inflation increased by 6.0% in the twelve months to June 2023. This is still higher than the RBA’s target range of 2-3%, but it is a significant decrease in the pace of annual inflation from March's 7.0% rise. Further, monthly inflation indicators rose 5.4%, a 0.1% decrease on May’s revised 5.5% figure.

If the RBA no longer needs to pull the level of rising rates to battle inflation, this means that cost-of-living pressures may improve for homeowners. 

Fewer changes to come: RBA to meet eight times in 2024

Last month, the RBA announced that the board would meet only eight times in 2024 to set monetary policy. This is a shift from its current pattern of monthly meetings every first Tuesday, excluding January. 

This new timetable may be helpful for borrowers because back-to-back cash rate hikes have taken some time to flow on to mortgages. 

Typically, it takes at least 20-30 days for a cash rate hike to kick in from the date of your notification letter. Even then, RateCity research shows that there is typically a two-to-three-month lag between a hike and when that extra money comes out of your bank account.

However, it’s challenging to know whether an earlier cash rate hike has made a dent in higher inflation if it takes two to three months for that increase to take effect. By having fewer meetings in 2024, the RBA may have a greater overview of the macroeconomic conditions that impact its decision whether to increase or decrease the cash rate. 

The era of monthly cash rate increases and mortgage rate pain may soon be over. 

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