The big four banks have revised their cash rate forecasts, tipping the next tightening cycle to start as early as June.
On the back of the latest Reserve Bank of Australia meeting, where Governor Philip Lowe dropped the “prepared to be patient” line from the accompanying statement, economists have been quick to ramp up their rate hike predictions as the RBA gets set to battle rising inflation.
Westpac’s economic team has predicted cash rate increases will start in June and hit 2 per cent by June 2023.
The bank’s previous forecast had the rate hikes starting in August and reaching 1.75 per cent in February 2024.
NAB has also updated its forecast. It now expects the first cash rate hike in June (previously August), while the ANZ’s has agreed with that timeframe, which is three months earlier than its initial prediction.
While they agree on the timing of the next rate rise, the banks vary in their predictions on increments and finish point.
The CBA said the neutral cash rate would be 1.25 per cent, whereas ANZ has said the cash rate will rise above 3 per cent but not until after 2023.
If Westpac’s predictions are correct and the cash rate reaches 2 per cent by June 2023, the average owner-occupier, with a $500,000 mortgage and 25 years remaining, could see their monthly repayments rise 22 per cent, or $509 per month, according to RateCity.com.au.
RateCity.com.au Research Director, Sally Tindall said the RBA’s change in messaging had forced the big four economists to revise their forecasts.
“The notable exclusion of Governor Lowe’s “prepared to be patient” mantra has raised alarm bells among economists,” Ms Tindall said.
“Governor Lowe effectively ruled out a hike in May by stipulating he wanted to see further wages data, the next round of which is out mid-May.
“However, June is a live possibility.”
Ms Tindall said if the cash rate reached the upper bound of the economist’s forecasts, it will hit borrowers.
“If Westpac’s forecasts are realised, by June next year the average borrower with a $500,000 loan could see their repayments rise by $509,” she said.
“To put that into context, that’s like having your car registration come up for renewal every single month.
“While there’s plenty of conjecture about how high the cash rate will go, if Westpac is on the money, it could equate to a 22 per cent hike in mortgage repayments in just over a year.
“That’s a steep rise, particularly for people with large loans compared to their income.”
Ms Tindall suggested borrowers take a proactive stance if they are worried about interest rates rising.
“People who think they might struggle to make higher repayments shouldn’t wait until June to see whether the RBA makes its move,” she said.
“Now is the time to start battening down the hatches and building up a buffer.”
