Westpac predicts shocking interest rate hike to come

All four of Australia’s big banks have made grim predictions about interest rates, with the latest anticipating the most dire forecast yet.

Interest rates will increase to 3.1 per cent next week and keep rising to 3.85 per cent, according to Westpac.

It became the last of the big four banks to predict the increase from the Reserve Bank of Australia.

Commonwealth Bank, NAB and ANZ all revealed on Wednesday they anticipated the cash rate would be hiked 25 basis points at the RBA’s November and December board meetings, taking the rate to 3.1 per cent by the end of the year.

It comes after the consumer price index was revealed to have risen by 7.3 per cent in the past year.

Westpac’s chief economist, Bill Evans, said he expected the RBA board to raise the cash rate by 50 basis points in November for a terminal rate of 3.85 per cent by March, revised up from 3.6 per cent.

“The September quarter inflation report has come as such a major surprise that we think the Reserve Bank board will decide to raise the cash rate by 50 bps at the next board meeting on November 1,” he said.

Interest rates will increase to 3.1 per cent next week and keep rising to 3.85 per cent, according to Westpac. Picture: NCA NewsWire / John Gass

“The quarterly CPI print was an increase of 1.8 per cent for the trimmed mean (the accepted measure for underlying inflation), well above market expectations of 1.5 per cent.”

Mr Evans said during the period of rising inflation, he had been most concerned about a “strong inflationary psychology becoming entrenched in the Australian psyche”.

“As this develops, businesses become more confident that they can raise their prices; consumers become more accepting of such action and see significant wage increases, in the context of tight labour markets, as necessary to compensate, sustaining the whole inflation process,” he said.

ANZ agrees the cash rate will hit 3.85 per cent, which could mean repayments would increase by more than $1000 per month for all mortgages over $500,000 paid off over 25 years.

CBA predicts the cash rate will peak at 3.1 per cent, while NAB predicts it will peak at 3.6 per cent in March 2023.

The RBA will meet next week. Picture: NCA NewsWire / Joel Carrett

“There are no two ways about it – inflation is red hot in Australia right now, as it is in many parts of the world, and we expect the RBA will respond by raising the cash rate again,” a CBA spokesperson said on Wednesday.

“Indeed, our call has been that the RBA will deliver one or two more 25bp rate hikes, then pause for an extended period.”

ANZ flagged a single shock rise of 50 basis points in November was “possible”.

“But we think the RBA will prefer to hike more frequently than shift back to 50bp, given the reasoning behind the decision to go to 25bp in October,” a spokesperson said.

A rise of 0.25 per cent in November will see households pay $809 more per month on their mortgage than they were in April on a $500,000 home loan, according to Canstar.

For those with a $1m mortgage, repayments will increase by more than $1619 for a 0.25 per cent jump and $1778 for a 0.5 per cent rise.