RBA rate hikes likely to slow as Governor hints at taking foot off the accelerator

Australia’s cash rate hikes could halve from next month, with the RBA Governor today hinting the Board could soon take its foot off the accelerator.

Today, Governor Lowe said: “the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises”.

ANZ and CBA have updated their forecasts today on the back of Governor Lowe’s speech. However, ANZ is still predicting another double hike next month, with standard 0.25 percentage point hikes thereafter. The other three banks expect a 0.25 percentage point hike next month.

Big four bank’s cash rate forecasts:

• CBA: cash rate to rise by 0.25% to 2.60% in October, peaking at 2.85% in November this year.
• Westpac: cash rate to rise by 0.25% to 2.60% in October, peaking at 3.35% in February 2023.
• NAB: cash rate to rise by 0.25% to 2.60% in October and peak at 2.85% by November.
• ANZ: cash rate to rise by 0.50% in October to 2.85% and hike by 0.25% in November and December, which will be the peak at 3.35%.

Analysis from RateCity.com.au shows if the cash rate hits 3.35 per cent by the end of this year, as forecast by ANZ, someone with $500,000 owing at the start of the hikes could see their monthly repayments rise by $909 in total.

For someone with a $1 million mortgage, repayments could rise by a total of $1,818.

Total increase in repayments April to peak – updated ANZ forecast

Note: calculations are based over 25 years

Source: RateCity.com.au. Calculations are estimates and repayments are for an owner-occupier paying principal and interest over 25 years. Starting rate is the RBA existing variable customer rate of 2.86% in April 2022 and ANZ’s  cash rate forecasts are applied.

RateCity.com.au research director, Sally Tindall, said: “We might be done with the double hikes, but the trajectory for the cash rate is still up, with the majority of the big four bank economists predicting 0.25 percentage point hikes from here on in.”

“While we’re likely to be well over the halfway mark, there could still be another one percentage point of hikes to come, in order to get inflation back under control, potentially even more,” she said.

“Governor Lowe is prepared to do what it takes to get the inflation genie back in the bottle because the consequences of not reining it could have significant, more widespread problems.

“The remainder of the year is going to be incredibly tough for many families with a mortgage as both inflation and interest rates ramp up in the lead up to Christmas.

“Sit down and work out what your monthly repayments will look like if the cash rate hits 3.35 per cent. If that figure doesn’t fit with your current budget, make changes now, while there’s time.

“Refinance your mortgage to a lower interest rate, switch to a lower cost energy plan and put some of your ongoing subscriptions on pause.

“Changing up the way you go about your day, such as making your coffee at home instead of buying it out, might not seem like a big deal but the little things can often add up,” she said.

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