Which big banks have been right about RBA rate hikes?

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Which Big Four Banks – CommBank, Westpac, NAB, or ANZ – have correctly called cash rate movements over the past year? And what could this tell us about rising interest rates in 2023?

With ten Reserve Bank rate hikes under our belts, let’s take stock.

The path of cash rate hikes in 2022 - 2023

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Here we stand. This time last year, a 3.60% cash rate would’ve been unthinkable. Aside from the Reserve Bank of Australia maintaining a stance that rates wouldn’t lift until 2024, inflation had only just started to take off. ‘Cost of living’ wasn’t a buzzy term. 

Yet when inflation soared well above the 2 - 3% target band set by the RBA, Australia’s monetary policy needed an adjustment. Thus, the RBA deployed its primary tool to level out the economy: cash rate movements.

The first rate rise in May 2022 clocked in at 25 basis points and signalled the end of a historically low era. The rhetoric at the time was that pandemic economic stimulus measures (i.e. a 0.10% cash rate) were no longer needed, as the Australian economy had proven remarkably resilient. RBA governor Philip Lowe stressed that any rate rises were simply ‘returning things to normal’. 

However, as inflation skyrocketed and the cost of living crushed Aussie budgets, it soon became apparent stronger intervention was needed. The RBA followed up its first 25 bp move with four Herculean 50 bp jumps from June to September – taking everyone by surprise. Such large moves were highly unusual for the central bank and indicated a strong, restrictive signal.

In October, when the effects of rate hikes had caught up with most mortgage repayments, the RBA pivoted to a more conservative stance, delivering a series of 25 bp hikes from October 2022 to March 2023 (except January, when the central bank doesn’t meet). 

This took the cash rate from ‘neutral’ to ‘contractionary’ territory. Rate hikes were no longer about returning us to baseline: they were meant to rein us in.

As a result, mortgage stress has mounted; borrowers report having to dig into savings to afford the extra interest on their variable home loans. Even renters haven’t been spared, as CoreLogic reports rents shot up 10.2% in 2022 – thanks partly to landlords foisting interest increases on tenants.

Philip Lowe has reiterated in multiple statements that inflation is a more dangerous enemy than ballooning mortgage costs, arguing that inflation worsens economic inequality and makes it harder for ordinary people* to get by. 

Despite this, growing calls for a halt to hikes have become harder to ignore. New Mozo research found that 1 in 5 borrowers already couldn’t afford another rate rise in 2023, of which there have been two. 

*Lowe earned over $1 million in remuneration for his work as RBA governor in 2022. The rest of the nine-member RBA board in charge of cash rate decisions is staffed by millionaires, business leaders, PhDs, and titans of industry. According to the RBA, the average Australian earns $69,000 a year.

Big bank cash rate predictions: who was right? CBA, ANZ, NAB, and Westpac

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Looking back across our nine prediction articles, it’s clear that not every call made by a big bank has been entirely accurate. However, they have been a relatively reliable bellwether for the overall direction of interest rates. 

Firstly, the big banks have continually revised how high they think rates will go. Early calls from Westpac back in June 2022 put the terminal cash rate at 2.60% in early 2023. Now, Westpac thinks it’ll be 4.10% in May 2023. 

CBA had even warned us as recently as February that a cash rate above 3.35% could induce a per capita recession. Now, the big bank reckons the final rate will be 3.85% in April. 

Secondly, for individual rate movements (either 25 or 50 bp), the big four banks have been split into two camps. CBA and NAB have typically been more dovish, usually opting for 25 bp predictions made at a gradual pace, while Westpac and ANZ have pushed for hawkish and aggressive hikes, advocating for a higher final rate and 50 bp super-shocks. 

Here’s a breakdown of the big bank predictions from the last six RBA decisions, compared to what the RBA actually decided.

How often were the big four right about the RBA? Six-month snapshot

Sep 2022
Oct 2022Nov 2022Dec 2022Feb 2023Mar 2023
RBA move (bp)502525252525

For the last three RBA meetings, all four big banks have correctly called it. Only CBA and NAB have gotten it right for the last six meetings entirely. ANZ missed in October, while Westpac overshot its guesses twice (forecasting 50 bp moves instead of 25 bp ones). 

However, it should also be noted that Westpac was one of the largest proponents of the first massive 50 bp hike in June – though at the time, it predicted the RBA would only move 40 bp. 

For posterity (and nostalgia), here’s a compilation of all our prediction articles for this tightening cycle so far. 

Why big bank attitudes to RBA rate hikes matter

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Besides employing some of Australia’s leading economists, CBA, Westpac, NAB, and ANZ combined make up the vast majority of Australia’s banking services, catering to an estimated 80% of Aussies.

Each big bank also makes up the bulk of all home loan lending in Australia, either directly or by financing smaller lenders. The majority of home loans in Australia use variable interest rates, making them sensitive to the cash rate – and between May 2022 and February 2023, each big bank passed along the RBA rate hike to borrowers in full. 

Fortunately, while they may be thought leaders, the big banks are hardly rate leaders in the Mozo database. You can compare the big four with smaller lenders with our rate check hub, or browse low-interest home loans below if you’re seeking to refinance

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