Will the RBA hike the cash rate in December 2022? CBA, ANZ, NAB, and Westpac home loan predictions

Collage of a man walking along a red line, approaching jagged spikes.

2022 has been the year of inflation. From May to November, the Reserve Bank of Australia delivered 275 basis points worth of rate hikes, the consequences of which have been deeply felt by home loan borrowers, especially those with the Big Four banks.

Now, with the year coming to a close, let’s unpack how far we’ve come and where we’re going. What will the RBA decide in its 6 December meeting? And what can we expect from interest rates in 2023?

Effects of interest rate hikes in 2022

Collage of people stacking red blocks.

As the guardian of Australia’s monetary policy, many expect the RBA to play a critical role in managing inflation. The primary tool at its disposal is the official cash rate.

By cutting the cash rate, RBA liquidates the economy and encourages spending. Raising the cash rate, on the other hand, discourages spending.

The era of pandemic stimulus ended when the RBA first hiked the cash rate in May 2022. Since then, lending and deposit interest rates have shot up. 

For context, at the end of March, the average variable home loan rate for owner occupiers (LVR < 80%) in Mozo’s database sat at 3.09% p.a. Now, it’s 5.41% p.a.

The property market has felt the full force of the change, with price falls, capital losses, and reduced borrowing power creating one of the strangest spring selling seasons in recent memory. 

Inflation, however, continues to burn through wallets across the country, crushing real wages under the rising cost of living

At least some savings accounts now start with a ‘4’.

Westpac, CBA, NAB, and ANZ rate predictions for December 2022

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Some of the leading interest rate predictions this year have come from the Big Four banks, all of which have dutifully passed along the full rate hike every month since May. 

While past months have faced split prediction camps, all four agree that another 25 bp rate hike will come in December (pushing the cash rate up to 3.10%). 

The big banks disagree, however, on whether a December rate hike will be the peak of this tightening cycle, or if there’s more to come next year.

Westpac has led the hawkish pack with steep predictions from the outset. According to the bank’s reasoning, movements to the cash rate affect not only savings accounts and home loans, but the economic mindset. 

If everyone expects everything to go up, Westpac argues businesses could continue passing along cost and wage increases – thus, spending never slows. However, if the RBA sends a clear and resounding message with dramatic rate hikes, it encourages everyone to batten down the hatches instead.

As such, Westpac and ANZ agree that the cash rate will climb another 75 bp into 2023, settling at 3.85% in May. 

Commonwealth Bank leads the dovish quarter: the bank reckons December’s decision will be the last of the cycle, though there is room for the RBA to adjust its course if inflation holds strong in the new year. 

NAB finds the middle ground between the two camps with a 3.60% peak in March 2023.

Cash rate peak predictions from the big banks (28 November 2022)

December 2022February 2023March 2023April 2023May 2023
CBA3.10%----
NAB3.10%3.35%3.60%--
ANZ3.10%3.35%3.60%Nil3.85%
Westpac3.10%3.35%3.60%Nil3.85%

The RBA doesn’t meet in January. Neither ANZ nor Westpac expects a decision in April 2023.

Loan details

Rate change

Repayment change if rates go up

What’s the best way to handle mortgage rate hikes?

Collage of a woman clearing a gap in a pink block.

As late as November 2021, the RBA had been predicting it wouldn’t raise the cash rate above its historic 0.10% low until 2024. Patently, this hasn’t been the case. 

In a statement to a Senate committee, RBA governor Philip Lowe recently apologised to Australian homeowners who jumped into the housing market based on this embarrassingly hollow promise. 

However, Lowe argues rising mortgage costs and a decline in purchasing power are necessary trade-offs to fighting inflation, which will ‘naturally’ come down by 2024. 

In the meantime, rising mortgage rates will remain the nemesis of household budgets. Here are some strategies you can take to keep up with repayments.

  • Budget, budget, budget. Especially with holiday spending coming up, now’s the time to budget your monthly expenses and see where you can give or take. 
  • Pay down your principal to save on interest. Many consumers still have savings from the pandemic. If you can, consider making extra repayments to reduce the interest you have to pay later. 
  • Talk to your lender. They can help strategise how to manage your repayments or, even better, sometimes lower your rate – you might be surprised how much you can negotiate!
  • Go green. Recent research found that greening your home with energy-efficient features could add up to 10% in value and potentially make you eligible for a green home loan (which can come with rewards like a lower interest rate). 
  • Compare home loans. While refinancing can be a pile of paperwork and hoops to jump through, it’s infinitely preferable to suffering under a home loan you can’t afford. Compare home loans on offer to see if you could switch and save somewhere else. Look for features like a low interest rate, offset account, or a redraw facility.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

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