More RATE PAIN looms as big four agree hikes on the way

All of Australia’s big four banks are unanimously expecting more steep interest pain for borrowers after Westpac and NAB updated their cash rate forecasts.

Westpac, NAB, ANZ and the Commonwealth Bank of Australia are all predicting there will be two 0.50 percentage point hikes in both August and September, meaning four months in a row of 50 per cent increases.

NAB now expects the cash rate to sit at 2.85 per cent by November, while Westpac forecasts it will rise to 3.35 per cent by February next year.

It means someone who had a $500,000 NAB mortgage before the hikes began could be paying $760 more on their monthly repayments, while the monthly repayments for a $500,000 Westpac mortgage could rise by $908 from May 2022 to February next year.

RateCity research director Sally Tindall told Australians to “brace for more rate pain” over the coming months.

“Borrowers need to brace for more rate pain with several substantial rises still to come,” she said.

“All big four banks are now expecting two double hikes at the next two Reserve Bank of Australia meetings, with Westpac and ANZ both predicting the cash rate will reach 3.35 per cent in coming months.

“If this happens, the average existing variable rate customer could be paying 6.11 per cent on their mortgage by early next year.

“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.”

Westpac chief economist Bill Evans said the RBA’s July board meeting, and speeches by its governor and deputy governor were three “important” pieces of information they received when it came to revising their cash rate forecast.

“We have revised our terminal cash rate forecast in this tightening cycle to 3.35 per cent from 2.6 per cent,” he said on Friday.

“They (the RBA) are likely to continue tightening aggressively given the fear of rising inflation expectations.

“The cash rate is currently 1.35 per cent and we have been expecting the RBA board to lift the rate to 1.85 per cent at its August meeting.”

But Westpac’s forecast was not as dire as ANZ, who expected the cash rate to rise above three per cent before the Christmas holidays.

“Our expectation is that the RBA will deliver this via four more successive 50 basis point rate hikes in August, September, October and November,” ANZ head of Australian economics David Plank wrote on Tuesday.

“This 200 basis points of additional tightening sees the cash rate target at 3.35 per cent by November.”

The CBA forecasted that the cash rate will sit at 2.60 percentage points by November.

RBA governor Philip Lowe confirmed interest rates would keep going up.

“We are going through a process of steadily increasing interest rates and there’s more of that to come,” he said on Wednesday.

“We’ve got to move away from these very low-level interest rates we had during the (Covid) emergency.”

The RBA lifted the cash rate to 1.35 per cent at the start of July, with another 0.50 percentage point increase expected in August.