Most economists are tipping a 25 basis point increase to the official cash rate after the Reserve Bank of Australia meets for the first time in 2023.
The majority of respondents to comparison website Finder’s monthly RBA Cash Rate Survey (95 per cent, or 42 of 44 respondents) indicated a cash rate rise was likely on Tuesday, with most agreeing it would come in the form of a 25 basis point hike.
A 25 basis point rise would bring the cash rate to 3.35 per cent.
The panel forecast that the cash rate will eventually peak at 3.75 per cent, though 75 per cent of them think the RBA will take a pause on rate rises in March.
What do the major banks think will happen to the cash rate?
The major banks are split on how high the cash rate will rise in 2023.
CBA predicts there will be one more rate hike, likely to occur in February, taking the official cash rate to a peak of 3.35 per cent.
Westpac and ANZ are expecting a total of three hikes in 2023, with both banks predicting the cash rate will peak at 3.85 per cent.
Westpac and ANZ think the hikes will come in February, March and May, with the RBA taking a pause in April.
NAB is predicting two rate rises in 2023, to take the official cash rate to 3.6 per cent.
Outside of the major banks, Deutsche Bank Australia has issued an updated forecast: the bank is now predicting a total of four RBA hikes in 2023 with a peak cash rate of 4.1 per cent.
How much will a rate rise add to mortgage repayments?
Analysis by RateCity indicates a 0.25 percentage point rise would mean the average borrower with a $500,000 loan in May 2022 could soon be paying $908 more a month on their mortgage than they were less than a year ago.
The analysis showed that mortgage repayments had increased 39 per cent since the RBA started hiking rates.
RateCity Research Director, Sally Tindall said a rate hike in February would take the cash rate to its highest level since September 2012.
“For the average existing owner-occupier, this could see their mortgage rate climb to over 6 per cent and their monthly repayments rise by just under 40 per cent since the start of May,” she said.
She said there were signs the cash rate rises were starting to have an impact on inflation.
“While the barrage of hikes isn’t over, we are starting to see some encouraging signs these cash rate hikes are finally packing a punch,” Ms Tindall said.
“The latest retail trade figures for December from the ABS show a 3.9 per cent drop from the previous month in seasonally adjusted terms. This pull back in spending might not be music to retailers’ ears, but it will be for the RBA.
“It’s exactly what the Board wants to see – it just took a lot longer than expected.
“That said, the RBA won’t be blowing the full-time whistle based on a couple of months’ worth of data. Inflation might have peaked, but it’s not going to dutifully drop back down to below 3 per cent without further intervention.
“While economists are split on just how high rates will climb, next week could be the first of up to four more rate rises this year.”
Ms Tindall said the December retail trade figures from the ABS showed a 3.9 per cent drop from the previous month in seasonally adjusted terms.
“This pull back in spending might not be music to retailers’ ears, but it will be for the RBA,” she said.
“It’s exactly what the Board wants to see – it just took a lot longer than expected.”
Despite these signs of improvement, borrowers and the property industry should prepare for further rate hikes.
“That said, the RBA won’t be blowing the full-time whistle based on a couple of months’ worth of data,” Ms Tindall said.
“Inflation might have peaked, but it’s not going to dutifully drop back down to below 3 per cent without further intervention.”