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

Collage of a man walking beside an arrow toward the next RBA cash rate decision.

The Reserve Bank of Australia (RBA) has hit a lull in the rate hiking cycle. Between May 2022 and June 2023, the central bank raised official interest rates by 4.00% – a Herculean leap to combat Herculean inflation. Each hit to the cash rate brought more home loan pain to variable-rate borrowers and tightened the expanding economy with a vice.

But despite inflation sticking higher than the target band, the RBA has held off on making any more changes for the last two months, leaving the official cash rate at 4.10%. Though the bank retains a tightening bias – ‘we will hike if we have to’ – the appetite for more seems sated. Experts at Australia’s Big Four Banks now speculate that rate hikes are over. 

However, household spending has risen, and the monthly Consumer Price Index (CPI) shows stubbornly high housing, food, and services inflation, which may create trouble for the RBA. 

Indeed, even though inflation has mostly been driven by supply chain issues and corporate profiteering, the RBA may see consumers spending more of their household wages as getting ‘complacent’. A rate hike in September would be a resounding reminder that money these days should be saved, not spent.

So with another RBA meeting coming up, do borrowers have to brace themselves? Or is the era rate hikes truly done? Let’s break down the forecasts for the RBA’s 5 September meeting.

Will the RBA hike interest rates in September?

Collage of a person standing on top of an interest rate mountain.

Both the July and August RBA rate holds were preceded by heavy debate. Most odds were split fairly evenly on whether the central bank would hike or hold. However, the predictions are more uniform this time: the RBA will not hike the cash rate in September. 

“It seems more likely that they’ll hold,” says Mozo banking expert Peter Marshall.

“There’s definitely a risk that they’ll hike, but there’s been no data out in the last month that would suggest a change of direction from their last meeting, so I think they’ll hold for a bit longer.”

Marshall points to Mozo’s latest banking data as further proof lenders believe the rate hiking cycle is finished. CommBank, Macquarie, and ING have all cut their fixed home loans recently, suggesting they see monetary policy holding steady. 

“Whether that counts for much in the end, I don’t know, but that does seem to be where their thoughts are at the moment,” he says. 

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

Collage of four hands pointing to an RBA interest rate decision question mark.

At the moment, the Big Four Banks are in universal agreement there will be no rate rise in September, but that doesn’t mean there is consensus on how high interest rates will go

While Westpac, Commonwealth Bank, and ANZ all argue that interest rates have gone far enough, NAB believes there will be one more rate hike left in this cycle – most likely by December 2023. 

Big Four Bank cash rate predictions – September 2023

Cash rate peak
ANZ
4.10%
CBA
4.10%
Westpac
4.10%
NAB
4.35%

Marshall agrees there is a near-term risk that inflation data could convince the RBA to hike the cash rate one more time – most likely in October or November when the quarterly CPI comes out. 

However, the buzz surrounding a potential rate pause means there’s a lot to celebrate. Whether we’re one or done, borrowers can soon relax about their mortgage repayments

“It’s probably not going to be until the first quarter of next year that we can actually feel comfortable that the rate cycle is over. It will take a bit longer to ensure that the key economic indicators are going in the right direction,” explains Marshall.

“But once that happens, people can stop worrying about increasing prices on their mortgages.”

When will interest rates come down?

Collage of two people hiking down an interest rate cut graph.

Of course, the next phase to look forward to if the RBA is done raising rates is the prospect of a cash rate cut. The central bank will lower interest rates once inflation hits the top of its target band of 2% - 3%. The Big Four Banks estimate this won’t happen until late 2024 at the earliest, so the cash rate will likely stay above 4% until then.

The good news is that when rates start falling, it’ll likely happen in 0.25% intervals – starting with a first cut between July and September in 2024, according to NAB and Westpac.

NAB expects the cash rate to peak at 4.35% by December 2023 before eventually lowering between June 2024 and March 2025. Westpac follows a similar timeline, except it has the cash rate falling from a peak of 4.10%. 

The models use 0.25% intervals for each rate cut – the standard size of RBA rate changes. 

Cash rate cut predictions from Big Four Banks* – September 2023

June 2024
Sept 2024
December 2024
March 2025
NAB
4.35%
3.85%
3.60%
3.10%
Westpac
4.10%
3.85%
3.60%
(No prediction given)

*Note: CBA and ANZ have not yet laid out concrete timelines at the time of writing, though they also expect rate cuts for late 2024. 

This is, of course, highly dependent on inflation coming down within the time frame and doesn’t take into account unexpected headwinds like an economic recession. 

Cuts to the cash rate also don’t automatically mean cuts to home loans. Lenders aren’t obligated to pass cuts along to customers partially or in full, even though the central bank may expect them to.

“My view is that the home loan rate war won’t start again when the RBA cuts the cash rate,” warns Marshall. “The banks won’t need to offer sweeteners – plenty of people will knock at their doors.”

As a result, we probably shouldn’t look forward to home loan interest rates lower than 3% - 4%. It’s highly unlikely we’ll ever see ones as low as the offers in 2020 - 2022. Back then, the cash rate was at a historic nadir of 0.10%.

What does an interest rate pause mean for home loans?

Collage of a woman thinking about her home loan interest rates as an arrow.

If official interest rates stay the same, it provides some certainty for both lenders and borrowers alike. Borrowers can compare home loan offers that aren’t likely to change under their feet, while lenders can make long-term business decisions without worrying about cash rate hikes adding pressure to their operating costs. 

During the rate pause, variable interest rate home loans will likely stay roughly where they are. We’re unlikely to see offers below 5% until the RBA starts making rate cuts. Fixed rate home loans, on the other hand, may experience changes sooner. 

Since a fixed interest rate doesn’t change for the length of the term, lenders set fixed rates based on what money they think they’ll need to recoup during that period. As a result, fixed mortgages predict the rate environment.

“I think if economic indicators remain reassuring for the RBA over the next couple of months, we’ll see fixed rates starting to drop before the end of the year,” explains Marshall.

“So, another two months or so, and it’ll be a torrent of fixed rate cuts. There are reasons to be optimistic if you’re a home buyer at the moment. Just hold on a little longer, and fixed rates will become more favourable.”

A higher cash rate means higher operating costs for lenders – hence, higher fixed rates. But if lenders expect the cash rate to come down, they’ll lower fixed rates. This means we’ll likely get cuts to long-term fixed rates first, then short terms of 1-3 years. Once this happens, we’ll know that lenders expect RBA rate cuts soon.

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