RBA unlikely to take its foot off the accelerator

The Reserve Bank is expected to raise the OCR by another 0.5 percentage points today, taking it to 2.85% – the highest rate since April 2013.

If this forecast by three of the big four banks becomes reality, an average borrower with a $500,000 loan with 25 years remaining could be paying $760 more a month than they were before the hikes started in May, assuming banks pass the hikes on in full, RateCity.com.au analysis showed.

But if the OCR is hiked by 0.25 percentage points, the total increase for the same borrower would be $687.

Just how high the OCR will go remains a contentious issue. CBA believes it will peak at 2.85%, while Westpac expects a peak of 3.6%. Here are the big four bank cash rate forecasts:

• CBA: +0.25% in October, peaking at 2.85% in November. Two 0.25% cuts in August and November 2023
• Westpac: +0.50% in October, peaking at 3.60% in February 2023. Four 0.25% cuts in 2024
• NAB: +0.50% in October, peaking at 3.10% in November
• ANZ: +0.50% in October, peaking at 3.35% in December. Two 0.25% cuts in 2024

RateCity.com.au also analysed how the average borrower’s monthly repayments could rise in total if the forecasts are realised. See table below.

Note: Calculations are estimates and repayments are for an owner-occupier paying principal and interest over 25 years. Starting rate is the RBA existing variable customer rate of 2.86% in April 2022 and big four bank cash rate forecasts are applied.

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

Tindall noted that recent APRA data showed deposits from households hit a new record high of $1.3 trillion, while ABS figures showed that retail sales also clocked up another rise.

“If the RBA pulls the trigger on yet another double hike, this would see the cash rate rise to its highest level in nine-and-a-half years, while the average owner-occupier rate could soar to over 5.5%,” she said.

Tindall reminded borrowers to brace for the rate hikes and to consider the two- to three-month lag between the OCR hikes and the time when this extra money comes out of their bank account.

“You might think you’ve successfully cleared five RBA hikes when really, you’ve only conquered three, potentially even two,” she said. “Work out what your repayments will be after this latest hike, but also what they could get to if the cash rate hits 3.60%. If you can, start making these higher repayments now, so you know ahead of time you can afford them. If you can’t, start making cutbacks today.”