Interest rate hike will come sooner than expected, says CBA

Economists at the Commonwealth Bank have brought forward their rate hike forecasts, tipping the Reserve Bank of Australia will lift the cash rate above its current historic lows in November 2022. 

“We have pencilled in an increase of 15 [basis points] which would take the cash rate to 0.25%,” said CBA head of Australian economics, Gareth Aird.

The major bank sees a further increase of 0.25% in December 2022, followed by another three 0.25% increases in the first, second and third quarters of 2023. That would put the cash rate at 1.25% by September 2023.

Among lenders we track, the average variable home loan rate for owner occupiers making P&I repayments currently sits at 3.27% p.a. Assuming lenders hike rates in line with the RBA, this will jump up to 4.42% p.a.

For the average borrower paying off a loan of $500,000 over 25 years, that could translate to an extra $315 in monthly repayments each month, or $3,780 over the year.

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Local interest rate traders had tipped the RBA would move sooner than planned after the latest round of jobs figures showed unemployment dropped to 5.1% in May.

Underemployment also fell to 7.4%, the lowest it has been since January 2014 and only 0.4% below pre-pandemic levels.

CommBank is now the third major bank to challenge the RBA’s guidance that interest rates will not rise until 2024. 

ANZ economists believe the RBA will pull the rate hike trigger in late 2023, while Westpac forecasts a March 2023 move.

Despite the momentum in the economy, wages growth remains chronically weak. Aird warns that a swelling of the labour market supply once international borders open could subdue wages further.

“We believe that the RBA cannot achieve their objectives of full employment and inflation ‘sustainably in the target’ without the assistance of the Commonwealth,” he said.

“More specifically, fiscal settings need to remain stimulatory and net overseas immigration cannot catapult back to strong pre‑COVID levels if wages growth is to remain at 3% per annum or above.”

To work out how much you could be paying if rates go up, use our home loan repayments calculator. And for more information on property and lending trends, browse our home loan statistics page.