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

After ten consecutive rate rises, the Reserve Bank of Australia astonished home loan borrowers with a dovish pivot in April, voting to leave the cash rate on hold at 3.60%.

Despite the pause, RBA board meeting minutes indicate the decision could’ve gone either way, and while inflation remains high, it has lost steam. 

So let’s break down predictions for the RBA’s 2 May meeting. Will there be another rate hike? Or have we finally reached the cash rate peak?

Forecasts remain highly contested for the May RBA decision between the big banks. Last month, only Westpac and Commonwealth Bank (CBA) correctly predicted the pause, while NAB and ANZ leaned hawkish in favour of another 0.25% increase to the cash rate. 

The arguments for a rate hold remain largely the same headed into May: inflation has begun to cool and consumer sentiment has plummeted, but not enough to completely rule out a future move. During the March quarter, headline inflation clocked in at 7.0%, which is still way too high for the RBA's comfort. 

As it stands, the case for changing the cash rate has lost steam. CBA alone forecasts a final 0.25% boost in May before the RBA leaves it steady until 2024. NAB and Westpac claim the RBA is done for this tightening cycle, posting a 3.60% cash rate until rates drop in 2024, while ANZ maintains the May meeting is “live”, meaning it could go either way (hike or no hike). 

Either way, the Big Four banks agree we can look forward to unwinding rates next year.

Big Four Bank cash rate predictions - 24 April 2023

Indeed, Westpac and CBA announced mild increases to some of their lowest variable home loan rates in April, while according to Mozo’s database fixed rate home loans saw six times more cuts than rises. Since fixed rates are predictive, the peak seems near at hand.

So while banks expect costs to remain high in the short-term, their behaviour suggests mortgage rates may come down sooner rather than later.

Last week, Australian treasurer Jim Chalmers unveiled a thirty-year review of the Reserve Bank and its monetary policy. Chiefly, the review probed into whether the RBA has been effective in following the mandates of its charter: smoothing the highs and lows of the business cycle and ensuring the welfare of Australians. 

Among the 51 recommendations are changes to how the RBA makes cash rate decisions. This includes creating a separate board to set rates that only meet eight times a year (rather than eleven). This could slow down and spread the pace of future rate changes and give households a chance to absorb them. 

Monetary policy also operates with a lag, which could also give the RBA a chance to gather more evidence and study the effects of rate changes before making decisions.

While these recommendations have yet to be set in stone, they will ultimately change little for borrowers. Fighting inflation will continue to be the RBA’s priority, and that means upping interest rates until consumer demand slows.

Eyes have returned to the property market, which has seen enthusiastic price boosts and sales volumes over the last few weeks. While consumer sentiment has risen in the wake of April’s rate hold, Westpac reports that the market is a slingshot primed to fire. Once consumers become convinced that rates have peaked, buyers itching to snap up homes will go, go, go. 

This could likely lead to an explosion of competition and home values across the country reminiscent of the 2020 - 2021 property boom, despite the higher cost of housing finance. 

“There are people desperate to buy houses,” explains Mozo banking expert Peter Marshall. “It’s the same for a place to rent, even if you can afford it. There are a limited number of vacancies. So how much money can you throw at a problem?

“I’ve seen plenty of evidence that people are willing to pay silly money just to get the deal done and have a house. So I think as soon as people get the confidence that the RBA is done or pretty much done with increasing rates, it will all take off again and go like a rocket. It depends on how quickly the economy recovers and how bad it gets – but it’s not looking pretty.”

First home buyers hoping to get a foot in the door, take note. You may have a limited window before prices balloon again to silly heights.

For those already repaying a mortgage, whether to refinance or stick with your lender continues to haunt 2023. Australians refinanced $19.9 billion worth of home loans in February 2023 alone.

While now may be a great time to refinance for some, other borrowers may find themselves inadvertently trapped with their lender due to changes in their lifestyle and financial circumstances. 

For example, if you’ve had a kid, taken out a new credit card, or lost equity in your property since you bought it, you now look like a risky bet to lenders. Those having trouble refinancing for these exact reasons become home loan hostages. 

The good news? A home loan hostage situation can be temporary. So if you’re thinking about refinancing, here are some steps you can take to improve your chances of success. 

• Make sure you’re earning and saving consistently. Lenders love safe bets. If you’ve recently switched careers or found it harder to save due to the cost of living, you might unintentionally come across as a home loan red flag. Instead, accumulate at least three months of consistent paychecks and top-ups to your savings account before refinancing. This way, you show future lenders you can absorb any rate changes. 
  
• Cut back sooner rather than later. Refinancing is not a snap decision: it requires a similar level of preparation and forethought as applying for your original loan. If you think you’ll refinance later this year, clean up your spending habits now. Lenders want to see a frugal history, not just a frugal moment. You can download a budgeting app to monitor your expenses to get started. 
  
• Compare, compare, compare. Making more than one refinancing application registers as a “hard enquiry” on your credit report. If you don’t go with your new lender, this can lower your credit score and hurt your chances of refinancing. Compare lenders thoroughly beforehand so you can limit your refinance application to one. 
  

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