What ANZ, Westpac, Commonwealth Bank, NAB predict will happen with interest rates

The Reserve Bank is expected to leave rates unchanged for the first time in a year next week as inflation shows signs of moderation.

All major banks expect one or two more rate hikes before the RBA launches a series of rate cuts from late 2023 or early 2024.

Commonwealth Bank Australian economy chief Gareth Aird said a rate break on Tuesday was a 55 percent chance and described the chance of another 0.25 percentage point on April 4 as a 25 percent chance.

“A break in April combined with a tendency to walk therefore makes a lot of sense,” he said.

Westpac also expects a pause in rate hikes in April, but ANZ and NAB still see a rate hike next month.

A rate break next month would be the first without a rate hike since April 2022, before the RBA hiked rates at 10 consecutive monthly meetings.

This was the most severe pace of monetary policy tightening since the beginning of the spot rate era in 1990.

A borrower with an average $600,000 mortgage has already seen their monthly repayments rise 46.4 percent to $3,377 — up from $2,306 — while the Commonwealth Bank’s floating rate has risen from 2.29 percent to 5.42 per cent.

The Commonwealth BankAustralia’s largest mortgage lender expects the RBA to rise again in May, pushing cash rates to an 11-year high of 3.85 per cent from 3.6 per cent.

This would add another $95 to monthly payments on a $600,000 loan, bringing the amount up to $3,472.

“We would then say that the risk in our view is that the walking cycle is over and the next step fails,” Mr Aird said.

CBA predicted that the Reserve Bank would begin cutting interest rates in late 2023 and early 2024, bringing the cash rate back to 2.85 percent.

Inflation reached a 32-year high of 7.8 percent last year, but figures from the Australian Bureau of Statistics showed levels fell to 7.4 percent in January and fell to 6.8 percent in February.

Westpak chief economist Bill Evans expects a pause in April, followed by a rate hike in May, noting that the minutes of the RBA’s March meeting referred to the need for a pause to “allow additional time to assess the outlook for the to evaluate the economy’.

“When central banks face high inflation, the priority should be to move policy into contraction territory,” he said.

“The board recognizes that policies are now shrinking, so the urgency to move policies at each meeting is over.”

All major banks expect one or two more rate hikes before the RBA begins a series of rate cuts from late 2023 or early 2024 (pictured Sydney auctioneer Karen Harvey)

But Westpac expects seven interest rate cuts in 2024 and 2025, which would see the cash rate fall to 3.1 percent by the September quarter of next year and drop to 2.1 percent a year later in 2025.

ANZ senior economist Catherine Birch expects the RBA to raise rates to 4.1 percent in April and May, noting that the consumer price index remained well above the central bank’s target of 2 to 3 percent.

“Australia’s monthly CPI indicator showed that inflation momentum remains strong and is not slowing as much as the decline in annual inflation suggests,” she said.

National Australian Bank expects the Reserve Bank to raise rates to 3.85 percent in April, but leave them on hold after that.

NAB chief economist Alan Oster said the RBA will likely cut interest rates in the first half of 2024, bringing the cash rate down to 3.1 percent.

“It’s becoming increasingly clear that interest rates are nearing their peak, and the April meeting is a line-ball decision,” he said.

The labor market remains very tight, inflation is well above target and risks to wage growth remain on the upside.

“However, activity is also slowing as post-Covid momentum wanes and monthly CPI, the RBA and market expectations appear to confirm that inflation has passed its peak.”

Unemployment fell to a 48-year low of 3.5 percent in February.