Two big banks say the Reserve Bank of Australia will raise its peak interest rate significantly higher than previously thought, hitting borrowers hard as it tries to tame soaring inflation.

Westpac’s top economist has ramped up the second-largest home lender’s interest rate outlook to 3.35 per cent by February, warning property borrowers to brace for an “over tightening” by the RBA that will slow economic growth to almost a standstill and push up unemployment next year. Its previous forecast was for a maximum rate of 2.6 per cent.