Borrowers should brace themselves for “more rate pain”, as Westpac and NAB follow ANZ predicting the Reserve Bank of Australia will lift the official cash rate higher and faster than previously expected.
Westpac now expects the RBA to increase the cash rate 0.5 per cent in both August and September, followed by four consecutive 0.25 per cent hikes from October to February.
If those predictions come to fruition, the official cash rate would reach 3.35 per cent by February 2023.
NAB also expects back-to-back 50 basis point hikes in August and September, followed by two 25 basis point increases, taking the OCR to 2.85 per cent by November 2022.
Last week the ANZ upgraded its cash rate target to 3.35 per cent by November 2022.
“All big four banks are now expecting two double hikes at the next two RBA meetings, with Westpac and ANZ both predicting the cash rate will reach 3.35 per cent in coming months,” Ms Tindall said.
“If this happens, the average existing variable rate customer could be paying 6.11 per cent on their mortgage by early next year.”
Financial markets are even more bullish on interest rates, now tipping the RBA to lift the official cash rate to 3.45 per cent by December before peaking at 3.75 per cent by March 2023.
A cash rate at those levels would lift Australia’s average discount variable mortgage rate to 6.8 per cent by December and 7.1 per cent by March 2023.
Ms Tindall said RBA Governor Philip Lowe had made it clear the central bank would make steady increases to the cash rate to get it back to more normal levels.
“This month’s surprising unemployment data gives the RBA more ammunition to continue with its mission to lift the cash rate,” she said.
“Next week’s inflation figures will also be critical in determining how hard and fast the central bank goes.
“Inflation is currently at its highest level in over 20 years and could hit a three-decade high when the CPI figures are released next week.”
Ms Tindall said the RBA was focused on bringing inflation under control and getting interest rates back to pre-pandemic levels on a more permanent basis.
“While these forecasts may seem high to many Australians, it’s important for borrowers to realise the neutral cash rate is likely to be at least 2.5 per cent,” she said.
“Borrowers need to prepare for this new norm, rather than see it as an anomaly.
“Interestingly, Westpac is now forecasting the cash rate will climb significantly higher than 2.5 per cent, but that the RBA will cut rates in 2024.”
If the cash rate reaches 3.35 per cent by November 2022, borrowers with a $500,000 loan would see their monthly repayments rise $909.