What to expect from the RBA October meeting

Three out of Australia’s four big banks are tipping another 50-point hike to the national cash rate when the Reserve Bank of Australia (RBA) board meets on the first Tuesday in October 2022. With another hike of this size likely to exacerbate pressures on household budgets around the nation, the next question is: when are Australia’s mortgage holders likely to see some rate relief from the RBA?

ANZ: +50 basis points

ANZ head of global economics, David Plank, has said that while the RBA discussed a 25- or 50-point hike to the cash rate in the minutes of its September 2022 meeting, the higher hike was selected due to the importance of returning inflation to target to protect the economy. And with fresh inflation data not due to arrive until later in October 2022, the RBA can’t afford to slow the pace of rate rises just yet:

“From a tactical perspective, scaling back to a move of 25bp this soon risks being forced to scale back up in November if the Q3 CPI (published in late October) exceeds expectations. We think this sort of ‘back-flip’ would damage the RBA’s credibility.”

ANZ is forecasting that the RBA cash rate will reach its peak of 3.35 per cent by the end of 2022, where it will stay for the following year. Cuts to the cash rate aren’t being predicted until late 2024.

ANZ cash rate forecast

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

The sole dissenting voice among Australia’s major banks is CBA, which is sticking to its previous prediction that the RBA will start to slow down its cash rate hikes from October, and hike by just 25 basis points.

CBA head of Australian economics, Gareth Aird, said that nothing the RBA governor said in his recent speeches or parliamentary testimony outweighed what was said in the minutes of the RBA’s September meeting, which acknowledged that monetary policy operates with a lag; it will take time for activity and inflation data to reflect the recent rate hikes; and the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises.

“We maintain our central scenario that the Board will increase the cash rate by 25bp at the October Board meeting to 2.60%. From there we have one further 25bp rate hike in November which would take the cash rate to 2.85% (our expectation of the terminal rate).”

Looking further ahead, CBA is forecasting that once the RBA has held the cash rate for long enough to affect inflation, the Board may choose to cut the cash rate in late 2023.

CBA cash rate forecast

NAB: +50 basis points

While NAB had previously been forecasting that the RBA would start easing off on the cash rate with 25-point hikes in October and November, the RBA governor’s testimony to the parliamentary committee reportedly changed the bank’s mind:

“NAB changed its call on Friday to suggesting that enough moderation in demand had yet to be seen in the presence of what the Governor described as shifting inflation psychology in his semi-annual Parliamentary testimony.”

With this in mind, NAB is now predicting a 50-point hike to the cash rate in October, followed by a smaller 25 point hike in November 2022, bringing the cash rate to a maximum of 3.10 per cent, which it described as “mildly contractionary”.

NAB cash rate forecast 

Westpac: +50 basis points

Westpac updated its cash rate forecast following the RBA governor’s statements in speeches and testimony given in September 2022, which suggested that he will err on the side of a higher rate before deciding to scale back the pace of tightening. 

“We now expect the Governor to decide to push the rate more clearly into his best estimate of the contractionary zone before scaling back the pace of increases.”

Westpac remains the only one of the big four banks that are forecasting rate hikes to continue into 2023, chief economist Bill Evans predicting a maximum cash rate of 3.60 per cent in February 2023:

“Clear evidence of the expected slowdown in inflation will not be apparent until late February, allowing the RBA to go on hold in March on evidence that growth is slowing and that inflation and rates have also peaked in the US.”

Westpac is further forecasting that the RBA should start cutting the cash rate again slowly over the course of 2024.

Westpac cash rate forecast

How could a rate hike affect Australian household budgets?

Mortgage holders on variable interest rates who see every cash rate hike passed on by their lender could find themselves paying almost a thousand dollars more per month in February 2023 than they were in April 2022, according to RateCity research:

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 350 basis point increase from continuous cash rate hikes to Westpac's predicted peak of 3.60% in February 2023. Does not factor in fees.

To stay in the loop of when your bank or mortgage lender announces rate changes following the RBA meeting, you can sign up for RateCity’s Rate Tracker. You can also compare home loan options to get a better idea of whether refinancing with another lender could help you get a home loan that will better suit your personal financial situation.

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