Home loan borrowers in Australia may well be wondering how high interest rates will go – here are the current cash rate predictions proffered by the big four banks, speculating as to how high the Reserve Bank of Australia (RBA) may go, and when the rate hikes might finally begin to ease. 

Whenever the RBA hikes the official cash rate, Australian banks and other lenders are generally quick to follow, raising the interest rates they charge variable rate home loan borrowers.

After more than a year of holding the cash rate steady at a record low, in an attempt to steer the economy through the effects of the COVID-19 pandemic, the RBA raised it again in May of 2022, to tackle rising inflation.

The rate has risen at every monthly RBA meeting since, with home loan lenders typically passing on the change in full, making the average variable rate mortgage significantly more expensive than it was at the start of 2022.

At its March 2023 meeting, the RBA board raised the cash rate by 25 basis points, to its current level of 3.60%, and with the RBA still aiming to get inflation under control, it is likely we have not seen the end of the rate hikes yet.

With inflation still rising and the cash rate forecast unclear, some senior economists are predicting that the cash rate may climb as high as 4.10% by mid-2023. Here’s what we know so far.

How high will the cash rate rise?

Here’s what Australia’s big four banks currently have to say about how we may see the cash rate move for the next few months:

ANZ: ANZ expects rate hikes of 25 basis points in each of the next three RBA meetings that will see the cash rate peak at 4.10% in May. ANZ forecasts that the first rate cut will be in November 2024.

CommBank: CommBank expects the cash rate to peak at 3.85% by the middle of the year, with a 50 basis point drop in the last quarter of 2023, followed by more rate cuts in the first half of 2024.

NAB: NAB is forecasting that the RBA will lift rates by 25 basis points at each of the next three meetings to a peak of 4.10% in May. NAB expects the cash rate to stay at that level for the remainder of the year, before dropping by 50 basis points in total in the three months to March 2024.

Westpac: Westpac predicts the cash rate will climb by 25 basis points in March, April and May to a peak of 4.10%. Westpac expects it will then remain at 4.10% for the remainder of 2023, before falling by 25 basis points to 3.85% by March 2024.

RBA determined to return inflation to target range

At its monthly board meeting in March 2023, the RBA raised the cash rate by 25 basis points, and in a statement released following the meeting, governor Philip Lowe said that the central bank’s priority is to return inflation to the target range.

“High inflation makes life difficult for people and damages the functioning of the economy,” said Lowe. “And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. The Board is seeking to return inflation to the 2–3 per cent target range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”

“The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary,” he continued. “In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”

When will the cash rate rise again?

The RBA meets on the first Tuesday of every month, except for January. The next meeting of the RBA board is due to take place on Tuesday, April 4, and based on current trends, it is likely that the cash rate will rise again at this time.

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