Big four banks offer predictions for October cash rate

The big four banks have revealed exactly how high their economists expect the cash rate to rise when the Reserve Bank board meets today.

The big four banks have revealed exactly how high their economists expect the cash rate to rise when the Reserve Bank of Australia (RBA) board meets today.

The central bank lifted its cash rate by 50 basis points to 2.35 per cent last month.

However, minutes from the RBA’s September meeting show there was debate whether to only raise the rate by 0.25 per cent – a discussion not had in August.

“They acknowledged that monetary policy operates with a lag and that interest rates had been increased quite quickly and were getting closer to normal settings,” the minutes read.

So what about October? Economists tipped a rise again this month and the big four banks are all in agreement. It is by how much that they differ.

In a statement, NAB predicated another 50 basis points increase is on the cards but noted better news was ahead.

“In light of recent data and the RBA Governor’s statement, we now see a fifth consecutive 50 basis point rate increase in October (previously 25 basis points),” the statement reads.

“We continue to expect a 25 basis point rise in November taking the cash rate to 3.10 per cent, which we see as a mildly contractionary policy setting.

“We still expect the RBA to pause the hiking cycle after November to assess the impact of rate hikes taken across 2022 and the evolution of inflation, the labour market, and the economy. We continue to expect GDP growth to slow in 2023 as higher rates weigh on consumers.”

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Australia's four big banks are all predicting a rate rise, but differ in the rate they are tipping. Picture: NCA Newswire

 

Economists at Westpac on Monday said the cash rate will rise by 50 basis points.

“We expect it will decide to raise the cash rate by a further 50 basis points to 2.85 per cent,” a spokesperson said.

“On September 19 we changed our forecast for the October meeting from a 25 basis point increase to a 50 basis point increase.”

ANZ is predicting the same. In commentary released on Monday, the bank said: “US bond yields resumed their upward march, and we expect the RBA to hike 50 basis points [today].”

The Commonwealth Bank’s head of Australian economics Gareth Aird was the only one to break away from the pack, predicting a 25 basis points rise.

“We stick with our call for the RBA to slow the pace of their tightening cycle at next week’s Board meeting and to raise the cash rate by a ‘business as usual’ 25bps,” he said.

 

House prices are falling and mortgage repayments soaring in the wake of the RBA’s aggressive hikes. Picture: Lisa Maree Williams/Getty Images

As news.com.au previously reported, the cumulative impact of the RBA’s aggressive rate hikes have been devastating for mortgage holders.

The average monthly mortgage repayments soared last month by 30 per cent from their April pre-tightening level.

For a household with a $500,000 mortgage, this represents a monthly increase in repayments of $671, whereas a household with a $1,000,000 mortgage will pay an extra $1341 a month.

Already, the RBA’s aggressive monetary tightening has hammered Australian house prices and left the highest number of Aussie mortgage holders classified as at risk of mortgage stress for over three years since May 2019.

If the rate is hiked in October and November as predicted, that number will rise again to one in four mortgage holders under financial stress, the equivalent of 1.1 million people, Roy Morgan research found.

This would be the most mortgage holders classified as at risk since July 2013, just over nine years ago.