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

It’s been three months since the Reserve Bank of Australia (RBA) last raised interest rates. Its last decision brought the official cash rate to 4.10% – a decade high. 

At the moment, the central bank is warily monitoring the Australian economy as inflation slows down. The goal is to achieve a ‘soft landing’, i.e. kill inflation without causing a recession. 

But while inflation is moderating, sluggish growth in the economy has worried many economists. Recent data indicates Australia is in a per capita recession , which means that economic output divided by Australia’s population has lagged for two quarters in a row.

Experts call it the ‘slow down we had to have’ to cool the overheated economy, though many households might find this hard to hear.

Signs of economic distress will be on the RBA’s mind as it heads into its 3 October monetary policy decision – the first to come from new RBA governor Michele Bullock. Will the new leadership prove hawkish or dovish on interest rates? All eyes will be on her.

As it stands, the odds suggest we’ve already reached the cash rate peak. But with more tightening expected to flow through to the economy and home loans, there’s a potential that the RBA’s previous hikes have already overdone it.

So will the RBA hike the cash rate in October? Almost definitely not. But is the interest rate cycle over? Let’s look into the forecasts from the Big Four banks.

The latest Monthly Consumer Price Index puts annual inflation to August at 5.2%, up from 4.9% in July. This is still well above the RBA’s desired target band of 2% - 3%, so interest rates will need to stay high until they crush inflation. 

Rising insurance premiums, fuel prices, and housing costs have primarily driven the lift from July, but these items are more volatile than the usual basket making up core inflation. So while a minor bounce isn’t great, it’s still overall good news: the deeply restrictive cash rate is working. Therefore, it’s likely the RBA will not hike interest rates in October. 

“I think the RBA will hold in October,” says Mozo rate expert Peter Marshall.

“It will wait to see what happens with another month’s worth of inflation figures and unemployment rates. I don’t think that it’ll be looking to rush another change through. 

“It still has November and December left this year if the RBA board wants to hit us with another rate hike. So there’s time left. But I don’t think it’ll be wanting to make a swift decision right now.”

At the time of writing, all Big Four Banks agree the RBA will hold the cash rate steady at 4.10% in October. November is a little less certain, but for now, home loan borrowers can rest easy.

Commonwealth Bank, ANZ, and Westpac believe the cash rate is high enough to achieve its goals, so it will stay at 4.10% until interest rates come down. This means we’re at the peak of this cycle.

NAB is the one outlier. The big bank reckons we still have one more rate hike left for this cycle – a 0.25% jump by November or December 2023. This would put the official cash rate at 4.35% until it unwinds in September 2024.

Big Four Bank cash rate predictions – October 2023

November looks like a prime target for the experts who believe another rate hike is coming because it settles between the sweet spot of opportunity and damage control. 

“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 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.”

High interest rates put pressure on households and businesses, so it’s no wonder that many fear the central bank overdoing it and causing a recession. Some economists think the RBA has hiked too much, given how quickly inflation is falling, while others think the cash rate isn’t high enough to drive inflation down.

However, given that inflation is slowing, commodity prices remain high, and employment is tight, the Australian economy looks on track to avoid a technical recession.

This doesn’t mean cost of living pressures aren’t giving Australians pain. Indeed, even if a recession is avoided and interest rates are at their peak, we might be in a per-capita recession. This means that while the economy is still in the green, for everyday Aussies, it still ‘feels’ like we’re in a recession. 

The challenge for the RBA will be to cut interest rates at the right time as inflation falls. Cut too soon, and inflation could shoot back up. On the other hand, leaving interest rates too high for too long could lead to a recession because the pressure gets too much for household budgets. 

This is part of the balancing act the incoming governor Michele Bullock must play in her first year in the top job.

Two of the Big Four banks, Westpac and NAB, have each laid out predictions for when interest rates may come down. 

NAB believes there will be at least one more 0.25% rise, while Westpac sees interest rates remaining steady until next year. Both banks are, however, predicting that interest rates will fall by September of next year.

In the short term, NAB's projection could mean that mortgagors have to contend with another cash rate hike and, in turn, higher repayments. However, if these predictions also hold true in the long term, borrowers could see the interest rate on their loans falling in less than a year.

Since official interest rates have remained steady for the past few months, lenders have revised their rate expectations and started cutting fixed rate home loans. As the path ahead becomes more clear in the economy — and the date more certain when interest rates fall — fixed rate home loans could start to see some particularly advantageous rates in comparison to variable rates.

However, with the RBA possibly moving in either direction, borrowers should keep in mind that there are some tools to help manage interest rate hikes or take advantage of cuts to rates:

• Refinancing: For mortgagors locked into a higher interest rate, refinancing could save a significant amount over the life of the loan. However, be mindful of any exit fees or charges that may apply.
• Offset Accounts: one other way of counterbalancing high-interest rates is with an offset account. By depositing cash into an account linked to a loan, borrowers can reduce the amount of interest they’ll need to pay.
• Fixed rates: With fixed rates expected to drop even more in the coming months, locking in a low fixed rate could be advantageous. Fixed rates offer the benefit of predictable monthly payments, providing financial stability.
• Variable rates: On the flip side, a variable rate loan could allow borrowers to capitalise on further rate cuts immediately as they happen. They can also use interest-saving features like offset accounts and free extra repayments. However, there is also the risk of variable rates rising further in the future – and lenders aren’t obligated to pass along rate cuts to customers. 

Fixed rates offer stability but less flexibility, while variable rates offer more flexibility but come with less certainty. Mortgagors should assess their financial situation, as it could inform which loan is right for the appropriate situation. 

In the meantime, the path towards a soft landing for the RBA – and Australia – remains narrow. Home loan borrowers can brace more for more of the same until the economy does something wildly different. 

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