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

Well, the rate hold was nice while it lasted. The latest quarterly inflation data has spooked economists and experts at the Big Four Banks. Now, half the market believes the Reserve Bank of Australia will increase the cash rate in November 2023 for the first time in five months. 

The thirteenth rate hike will likely add another 0.25% to the cash rate, pushing it from 4.10% to 4.35%. Ripple effects across home loans will push up average interest rates as well, adding significantly to the mortgage stress already felt by Aussie borrowers.

However, every rate hike is risky, and Australia has already recorded a per capita recession. How could a November move change things? Let’s review the rate forecasts for the RBA’s 7 November meeting.

Most signs point to yes. The quarterly CPI fell from 6.0% in June to 5.4% in September, which will be to the RBA’s liking, but the monthly CPI rose from 5.2% annually in August to 5.6% in September: not good. While the monthly CPI is more volatile, it’s still an eyebrow-raising reversal of the progress made by the RBA’s tight monetary policy. 

Of course, it’s not guaranteed that interest rates will rise in November, but the odds aren’t looking great. The underlying factors driving inflation – fuel, food, and housing – have proved persistent. RBA board members have repeatedly stated that they won’t hesitate to lift the cash rate if inflation is too high, so another rate hike could be necessary to cool an overheating economy.

Moving interest rates in November instead of waiting has a certain logic, too. It would send a strong signal to Australians to reign in spending, keep the Aussie dollar balanced against other countries, and let matters settle before the summer holidays.

“November allows a bit more time for the impacts of the string of rate rises over the last year to flow through. If they hike in December, people will cry foul and say you’re ruining Christmas, and a December rate hike could have a larger than expected impact,” explains Mozo interest rates expert Peter Marshall.

“If they hike in November, they can put words around that, and the chaos can settle by the time people are doing their Christmas shopping, without businesses screaming about how much damage the RBA has done to them.”

All Big Four Banks predict there will be a rate hike in November. Commonwealth Bank, Westpac, and ANZ had previously said rate hikes were over but changed their minds after analysing the latest inflation data. NAB has been forecasting one more rate hike for a while now. 

Big Four Bank cash rate predictions – November 2023

ANZ Research reckons a “hawkish extended pause” will follow a November rate hike, meaning the RBA will wait and see how the decision affects the economy. But despite the united front the Big Banks have taken for the November meeting, each caution that nothing is cut and dry.

“[November] is going to be a finely balanced decision and a decision to hold still can’t be ruled out entirely,” explains Westpac chief economist Luci Ellis.

“An increase [in November] won’t be the outcome the RBA had hoped for. But given the strength of their rhetoric [...] waiting would be inconsistent with the clear language from the Governor’s speech this week about not hesitating if the [inflation outlook] changes.”

NAB and Westpac have laid out timelines for interest rates to fall, and there’s good news: they could fall next year. Inflation is projected to hit the top of the 2% - 3% target band by mid-2024, so the RBA may start slashing the cash rate to bring it down into ‘neutral’ territory. This could bring home loan interest rates down to a more reasonable level. 

When interest rates will come down (NAB and Westpac) – November 2023

NAB’s projected decline is sharper than Westpac’s, starting at 50 basis points worth of cuts in the September 2024 quarter. Home loan lenders don’t have to pass along cuts that match the cash rate, but it could still lower the cost of variable mortgage repayments.

If you’re considering fixing your mortgage, keep in mind that interest rate cuts and savings might come sooner rather than later – and it’s much harder to refinance a fixed home loan.

Every rate hike is risky. The current high cash rate is in ‘restrictive’ territory, meaning it’s high enough to start squashing inflation. But if the RBA takes the cash rate too high, it could also raise unemployment, kill consumer spending, and ignite a mortgage crisis that bursts the housing bubble. 

A storm like this would inevitably mean recession, but it’s quite tricky to know where the line is. How high is too high for the cash rate?

Unfortunately, there’s no clear way to know. Currently, employment is strong, and this is the main metric to watch. If people start losing their jobs, they won’t be able to afford their mortgage repayments, let alone the cost of living, which often hails a recession. 

However, a slightly higher level of unemployment is also desirable to the RBA, since it would bring down ‘services inflation’ (i.e. wage growth) and dampen consumer spending, thus working inflation-crushing magic. 

The RBA wants a soft landing. The main concern is unemployment rising too high, too quickly. But then, the same concern applies to inflation. And the cash rate. And property prices. 

We’ll just have to wait and see.

There is still home loan hope in today’s intense market: spring property has brought a new wave of supply for home buyers. The size of the average home loan deposit is still six figures, and interest rates can be scary to look at, but comparing deals, calling your lender, and taking advantage of interest-saving features like offset accounts can put the savvy buyer ahead of RBA rate hikes. 

This isn’t to say it’s easy, though. According to Mozo research, nearly 2 in 5 surveyed homeowners spend more than 30% of their income on their mortgage, meaning they’re officially under mortgage stress. And, 1 in 25 admitted over half their income goes to their monthly payments. 

“Spending half of a household’s monthly income on a home loan may seem staggering, however the shift from the COVID-era of ‘free money lending’ and ultra-low rate loans, to much higher rates in such a short space of time, means that this stress is not entirely surprising,” explains Mozo money expert Rachel Wastell.

It’s a CATCH-22 for the RBA: either it hurts Aussies by ramping up the cash rate, or it does nothing and lets inflation eat our wallets. There’s no easy way to handle it. 

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