Reserve Bank interest rates: Grim prediction for millions of Aussie homeowners as RBA predicted to hike cash rate in 2023

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Australian homeowners are being warned more mortgage pain is to come, as experts predict as many as four interest rate hikes in coming months.

Economists from leading investment bank Deutsche Bank expect the Reserve Bank of Australia’s official cash rate to hit 4.1 per cent by August, with predictions of 25 basis points hikes in February, March, May and August.

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If the predictions of continued increases are realised, Australian borrowers will be paying back over $1000 dollars more per month in mortgage repayments than before the RBA’s increases began in May, 2022.

While other experts say that estimation is at the more dire end of the scale, they agree the RBA is very likely to increase the cash rate to 3.35 per cent next week as it tries to curb inflation.

Australia’s annual inflation rate reached a 30-year high of 7.8 per cent in the December quarter and the RBA expects it to continue to increase in the months ahead, according to its December announcement.

While inflation is expected to eventually decline this year, RateCity predicts borrowers will “almost certainly” face another cash rate hike in February, which would make it the ninth rise in as many meetings.

Commsec’s Craig James agreed, telling Sunrise the bank expects the cash rate to hit 3.35 per cent next week.

However, after that the RBA is likely to pause to assess the economy, he said on Tuesday.

“I think Deutsche Bank are at the gloomy end of predictions,” James said.

“You’ve got to remember; we’ve had eight interest rate hikes in a row.

“We’ve gone from 0.1 of a per cent to 3.1 per cent in super quick time, we haven’t seen an aggressive reserve bank like this ever before.

“At some point in time, it’s got to slow the economy down and in our calculations, consumer spending is already starting to slow down.”

If the RBA bumps the cash rate to 3.35 per cent – a 25 basis point hike – it would take it to the highest rate since September 2012.

The change would mean the average borrower with a $500,000 loan before May last year could be paying a total of $908 more a month, according to RateCity’s analysis.

An average borrower with a $750,000 or $1 million loan, could be paying $1,362 or $1,816 more a month in repayments respectively compared to before May.

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‘Don’t stick your head in the sand’

The big four banks expect the RBA will hike by 25 basis points in February but when the cash rate will finally peak remains a contentious issue.

Commonwealth bank expects it to peak at 3.35 per cent next month, while ANZ, NAB and Westpac are flagging more rises may be on the horizon.

NAB predicts a peak in March at 3.6 per cent, while Westpac and ANZ say May at 3.85 per cent.

A 25 basis point rate hike could mean some borrowers are paying more than $1000 more in repayments compared to before May, when the hikes started. Credit:

RateCity research director Sally Tindall said Australia’s serious inflation problem left the RBA with little choice but to serve up another cash rate hike.

“After a break in January, the RBA is unlikely to leave the cash rate on hold for two months in a row,” she said.

“Australians are now looking down the barrel of the ninth rate hike since May of last year.”

For those with a home loan, Tindall said it was time to get their finances in order.

“Don’t stick your head in the sand. Now is the time to review your budget to make sure you can cover these higher repayments before they hit.”

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