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Major banks tip cash rate will peak at 3.85%

Today’s 0.25 per cent increase to the cash rate is less than two of the big banks predicted, with both the NAB and Westpac tipping it would rise 0.5 per cent on Melbourne Cup day.

Westpac now expects the cash rate to peak at 3.85 per cent in 2023, along with ANZ, while NAB sees rates reaching 3.6 per cent.

CBA is the most dovish of the major banks, predicting the official cash rate will get to just 3.1 per cent by December.  

The RBA’s decision to increase the official cash rate by 0.25 per cent to 2.85 per cent today marks the highest rate since the April 2013 meeting.

Consumer prices jumped 1.8 per cent in the September quarter pushing annual price growth to 7.3 per cent – a 32-year-high. research director, Sally Tindall, said it’s going to be a tough Christmas for many families with more rate hikes knocking on the door at the same time inflation is set to peak.

“Inflation isn’t going away without a fight. The RBA is likely to have to throw more firepower at it than it may have first anticipated,” Ms Tindall said.

Ms Tindall said it’s not surprising to see CBA, NAB, ANZ and Westpac increase their cash rate forecasts on the back of the higher-than-expected inflation data.

“ANZ economists believe the cash rate could climb by another 1.25 percentage points by May next year – this would see official rates rise by 3.75 percentage points in just over a year,” she said.

“If this happens, the average borrower with a $500,000 debt at the start of the hikes could be looking at a total increase in their monthly repayments of over $1000. 

“That’s not exactly spare change they’ll be scraping around for month after month.”

Ms Tindall said it’s important for borrowers to reassess their financial situation in light of rapidly rising interest rates.

“If you’ve got a home loan, sit down and work out what your budget would look like if rates rose by another 1 to 1.5 percentage points,” she said.

“While there’s no guarantee the cash rate will climb this high, now is the time to prepare.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.