NAB and Westpac hike peak RBA cash rate forecasts

Borrowers should brace for more interest rate pain with Westpac lifting its forecast for the RBA’s official cash rate to peak at 3.35 per cent early next year.

Borrowers have been warned more painful rate rises are coming as Westpac and NAB boosted their Reserve Bank cash rate predictions to include larger hikes over the coming months.

Westpac updated its cash rate outlook on Friday and now predicts it will peak at 3.35 per cent in February, up from a previous forecast of 2.6 per cent.

NAB also lifted its forecast for a peak in the cash rate of 2.85 per cent by the end of the year. Previously it saw a peak of 2.35 per cent by early 2023.

The big four banks now all predict the Reserve Bank will hike the cash rate by 50 basis points at both its August and September meetings, lifting the cash rate from its current 1.35 per cent level.

RateCity.com.au research director Sally Tindall said if the cash rate goes to 3.35 per cent, the average existing variable rate customer could be paying 6.11 per cent on their mortgage by early next year.

Someone with a $500,000 loan at the start of May could see their monthly repayments hit $3243 by February, according to RateCity’s analysis based on a 3.35 per cent cash rate. That would be an increase of $908 a month since May

RateCity.com.au research director Sally Tindall. Picture: Supplied.

Ms Tindall said the high rate hikes were in relation to a number of factors including unemployment figures and inflation.

“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.

“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 2.50 per cent.

“Borrowers need to prepare for this new norm, rather than see it as an anomaly.”

Ms Tindall noted while borrowers needed to “brace for more rate pain with several substantial rises still to come”, she said Westpac had also forecast a rate cut in coming years.

The bank announced on Friday that it expected the RBA to cut the official cash rate by 100 basis points in 2024.

“By early 2024 with inflation slowing back into the band; the economy operating below capacity; wages growth slowing and the unemployment rate rising it will be time to move the policy setting back to neutral,” Westpac said.

Citi economists say a rate hike of 75 basis points in August is possible if next week’s CPI inflation figure spikes.

Citi predicts a jump in annual headline inflation in the June quarter to 6.8 per cent.

If the forecast is correct, or higher, a 75 basis point move in RBA’s August meeting “will be firmly on the table”, the economists said.