Borrowers brace for another mega rate hike by the RBA

The RBA is tipped to hike rates by another 50 basis points on Tuesday. Here’s what it means for borrowers.

Average borrowers will have to pay between $148 and $296 more every month on their mortgage if the Reserve Bank hikes rates by 50 basis points as expected on Tuesday.

And there are plenty more rate rises to come, according to economists at the country’s largest banks.

A 50bp increase on Tuesday would be the fifth double hike since the RBA began lifting rates in May – and would take the cash rate to 2.85 per cent, its highest rate since April 2013.

“The RBA is almost certainly going to deliver its sixth consecutive cash rate hike. While it’s a difficult call as to how large it will be, another double hike is very much on the cards,” said RateCity research director Sally Tindall.

“While the RBA governor has indicated the board is looking to slow down the size of the hikes in coming months, based on incoming data, October is unlikely to be the meeting it takes its foot off the accelerator,” she said.

According to RateCity analysis, a 50bp increase in October will mean an additional $148 in repayments for a family with a $500,000 loan, taking the total increase since May to $760 per month.

A combination of high household savings and rising retail sales will make it unlikely that the RBA will slow or stop interest rate increases in the near future.

Westpac economists expect rates to rise to 3.6 per cent by February 2023, before sliding 1 per cent in 2024. At ANZ, economists expect a peak of 3.35 per cent in December.

Only Commonwealth Bank expects rates to rise by only 25bp on Tuesday. It forecasts a peak of 2.85 per cent in November.

Last week, CBA economist Gareth Aird said it was a “lineball call” whether the RBA would hike rates by 25bp or 50bp in line with other central banks around the world.

With expectations that the Albanese government’s budget on October 25 would not include “meaningful stimulatory discal policies”, the RBA would be more confident in slowing rate rises, Mr Aird said in a note to investors on Friday.

“The average borrower may soon be paying an extra $760 a month in interest to their bank, at the same time their petrol and grocery bills continue to rise,“ said Ms Tindall.

“Borrowers should realise there’s a two- to three-month lag between when the RBA hikes the cash rate and when this extra money comes out of their bank account.”

According to RateCity analysis, a 50bp increase in October will mean an additional $148 in repayments for a family with a $500,000 loan, taking the total increase since May to $760 per month. For those with a $1m loan, a 50bp rise will mean an extra $296 monthly payment.

If Westpac’s forecasts are right, those with a $500,000 mortgage will be paying almost $1000 per month more than they were in May by the time interest rates peak next year.