Will the RBA hike the cash rate in August 2023? CBA, ANZ, NAB, and Westpac home loan predictions

People loading another red block onto a red pyramid

In an astonishing pivot, the Reserve Bank of Australia (RBA) made a quiet July by holding the official cash rate at 4.10%. Home loans cooled their interest rate rush somewhat, much to the relief of borrowers. 

But another interest rate decision looms on the horizon. With the release of new quarterly inflation figures, the RBA must decide whether interest rates have risen high enough or if household budgets need another kick. 

Let’s break down predictions for the RBA’s 1 August meeting.

Will the RBA hike interest rates in August? CPI could be the decider

Person looking back at spiking CPI index

In the year to June 2023, headline inflation clocked in at 6.0% – the lowest figure since September 2021 and a slowdown far steeper than expected. This marks the second consecutive quarter that inflation has fallen, a phenomenon called ‘disinflation’. 

So the good news? The RBA is successfully wringing inflation out of the economy. The bad news? 6% is still far from the RBA’s ideal 2% - 3% target. 

According to RBA governor Philip Lowe, whose term ends in September, inflation must come down no matter what, or the consequences could hurt Australians far more than costly home loans.

“Our job at the central bank is to make sure that this period of high inflation is only temporary. It is important that we are successful here,” Lowe explained in a speech in June. 

“High inflation is corrosive and damages our economy. It erodes the value of money and savings, puts pressure on household budgets, makes it harder for businesses to plan and distorts investment. It makes us all poorer and hurts people on low incomes the most.”

But with inflation lower than expected, has the RBA done enough to ensure the slowdown sticks? The last few cash rate decisions have all been close calls: the RBA surprised with every hike or hold. 

“The RBA is very focused on getting inflation down,” says Mozo banking expert Peter Marshall.

“The only thing they can do about inflation is to raise interest rates. So if they think there’s a risk inflation is not reducing as quickly as they would like, they will hit the interest rate button.”

Marshall warns that one more 0.25% rate hike is likely in August. It could be the final stomp required for inflation to come down and stay down. 

“There’s plenty of hard information the economy is coming to a very fast halt and going into reverse within the next few months,” says Marshall. “I would find it really hard to believe the RBA thinks the mountain of negative data appearing right now can be ignored for long.”

“So the logic may be that one more rate rise will do the trick.”

Commonwealth Bank, Westpac, NAB, and ANZ rate predictions for August 2023

Man walking diverging straight and curly paths.

ANZ finds itself the most dovish of the big banks ahead of the August RBA announcement. ANZ projects an extended hold into 2024, when rates may eventually come down, meaning the June rate hike was the final one. 

Commonwealth Bank and Westpac maintain the middle ground by predicting one more rate hike in August, the last for this cycle. This would mean a cash rate peak of 4.35% until 2025. CBA has had the most accurate forecasts for each RBA decision this year, while Westpac has consistently favoured aggressive rate hikes. 

Big Four Bank cash rate predictions – 28 July 2023

August 2023
September 2023
ANZ
Nil
-
CBA
4.35%
-
Westpac
4.35%
-
NAB
4.35%
4.60%

NAB, on the other hand, leans the most hawkish. The big bank reckons there will be two more 0.25% additions in August and September. This would push the final cash rate to an eye-watering high of 4.60%. With a low quarterly inflation figure, however, this scenario seems less and less likely.

Loan details

Rate change

Repayment change if rates go up

When will interest rates come down?

Man leaps down red blocks.

Latest figures from the RBA suggest that inflation won’t fall to the target band until 2025, though the big banks are more optimistic about a slowdown by 2024. 

Interest rates will only come down when inflation does, so unfortunately, this means home loans may stay costly for another two years. On the bright side, savings account interest rates will remain attractive longer — every raincloud, as they say. 

The RBA will go through some shake-ups in 2024, however. New governor Michele Bullock will have taken over from Philip Lowe, and the RBA will meet less frequently, which could spread out interest rate decisions and delay the pace of any rate hikes, holds, or cuts. 

Marshall warns the changes won’t affect the decision making process: the RBA may retain a tightening bias so long as inflation proves a threat. 

“I don’t think replacing Philip Lowe is going to change things enormously,” he explains. 

“The RBA will still make its decisions based on the views of a group of people. It’ll be a slightly different group of people, so we may get some different decisions, but it’s not going to see an abrupt, ‘Oh, no, we’ve been doing the wrong thing all these years.’”

Will the RBA cause a recession?

Man plummets down recession hole between red blocks.

A significant criticism of the RBA’s aggressive tightening of monetary policy is that there’s a risk the central bank could overdo it. If rates go too high too fast, disheartened and mortgage-stressed Australians may close their wallets altogether, stop spending, and plunge Australia into a recession. 

A recession is another worst-case scenario the RBA tries to avoid. If one were to happen, unemployment would rise, and the cost of living would become unaffordable for many. 

At the moment, employment remains strong and tight, and this is usually the most reliable bellwether for a recession. If people start losing their jobs and businesses start closing, it cuts off the flow of cash in the economy and causes the contraction economists watch out for. 

Recessions are unavoidable parts of the business cycle, of course, and we may experience a minor one in the recovery from inflation. But for now, the danger seems distant.

What can home loan borrowers do about costly mortgage repayments?

Person shoulders heavy red block.

Need help with mortgage repayments? Your window of opportunity to refinance may be closing. 

Refinancing becomes less and less tenable with every rate hike. This is because rising interest rates not only squeeze and stretch budgets, which can hurt your borrowing power, but high rates also push up serviceability test thresholds. 

Lenders partially assess creditworthiness by evaluating whether borrowers can pay interest rates up to 3% higher than the number they’ve applied for. So if you’re struggling to afford 7% rates and want to refinance to 5%, a mortgage lender will test your finances at rates as high as 8% – a rate which may be too high for you to finance. 

Three of the big four banks have lowered their stress tests because of this problem. Now, instead of 3%, eligible refinancers applying to CBA, NAB, and Westpac may only be assessed at rates 1% above the one they want.  

But your refinancing application will still need to show a good credit score, genuine savings, and a low debt-to-income ratio to be successful, all of which may have gotten harder with the cost of living so high. If you can’t refinance, you risk becoming a mortgage prisoner

Instead, jailbreak your mortgage before matters get out of hand. Some crucial early steps you can take on the road to refinancing are:

  • Lowering your spending and credit card limits. 
  • Clearing excess debt, especially credit card and personal loan debt. 
  • Calling your lender to negotiate a lower interest rate. 
  • Getting a property valuation done to asses your home equity
  • Comparing home loans to see if you could switch and save. 

If you’re already preparing a refinancing application, check it for these red flags to ensure you aren’t giving the wrong impression.

Compare home loans below. For award-winning picks from 2023, check out our best home loans hub.

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can compare more home loans here.
Last updated 15 October 2024 Important disclosures and comparison rate warning*

Home loan comparisons on Mozo

  • Fixed Home Loan

    • Owner Occupier
    • Principal and Interest
    Interest rate
    6.14 % p.a.
    Fixed 4 years
    Comparison rate
    5.93 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Competitive fixed rate on up to a 30 year loan term. No application fees to pay. Additional repayments up to $20,000 per year without penalty. Free online redraw. Optional 100% offset feature ($10/month) 10% minimum deposit. Fees & charges apply, Australian Credit Licence 237879 is held by Bendigo and Adelaide Bank Limited, the credit provider.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

image of houses

Need help with your Home Loan?

Whether you're looking to purchase a new home or refinance your existing loan, our friends at Lendi can help! Lendi’s expert advice is completely free of charge.

Learn more

* 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.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.