Westpac chief economist Bill Evans now expecting Reserve Bank cash rate of 3.35 per cent

Westpac issues a dark warning about Australian interest rates with the cash rate set to hit a 10 year high in a matter of MONTHS

  •  The Westpac bank now forecasting a 3.35 per cent cash rate by February 2023
  •  ANZ has this week predicted an official cash rate at 3.35 per cent by November

Westpac is now expecting the Reserve Bank cash rate to hit a 10-year high of 3.35 per cent by February next year.

Chief economist Bill Evans was previously expecting interest rates to peak at 2.6 per cent in early 2023 during this tightening cycle.

But now Westpac has joined ANZ in forecasting the cash rate surging to 3.35 per cent, which would be the highest level since October 2012.

Westpac is predicting that will occur by February 2023 while ANZ is expecting that to happen by November this year.

Under Westpac’s forecasts, the RBA would raise rates by 0.5 percentage points in both August and September, followed by 0.25 percentage point increases in October, November, December and February. 

Westpac is now expecting the Reserve Bank cash rate to hit a 10-year high of 3.35 per cent by February next year

Reserve Bank rate rises since May have taken the cash rate to a three-year high of 1.35 per cent.

The increase from a record-low of 0.1 per cent has also marked the steepest pace of monetary policy tightening since 1994.  

New inflation data for the June quarter, due out on July 27, could see the Reserve Bank impose an even bigger 75 basis point rate rise in August, which would next month take the cash rate to a seven-year high of 2.1 per cent.

The Commonwealth Bank, along with the other big four lenders, are all expecting the Reserve Bank of Australia to next month raise the cash rate by 50 basis points, or 0.5 percentage points, to a six-year high of 1.85 per cent.

But CBA’s head of Australian economics Gareth Aird said there was an outside chance of a 75 basis point increase on August 2, taking the cash rate to seven-year high of 2.1 per cent from the existing three-year high level of 1.35 per cent.

This would also be the steepest monthly rise since December 1994, meaning a borrower with an average $600,000 mortgage would cop another $256 increase in their monthly mortgage repayments on top of the $352 increase they have endured since May.

The Commonwealth Bank's head of Australian economics Gareth Aird said there was an outside chance of a 75 basis point increase on August 2, taking the cash rate to seven-year high of 2.1 per cent from the existing three-year high level of 1.35 per cent

The Commonwealth Bank’s head of Australian economics Gareth Aird said there was an outside chance of a 75 basis point increase on August 2, taking the cash rate to seven-year high of 2.1 per cent from the existing three-year high level of 1.35 per cent

Mr Aird said a ‘material upside surprise’ to inflation data for the June quarter, due out on July 27, would ‘raise the risk of a 75 basis point increase at the August board meeting’.

The Commonwealth Bank is expecting headline inflation in the year to June to have surged by 6.2 per cent – the fastest pace since 1990.

But a bigger increase than what the banks and financial markets are expecting could spark a bigger official rate rise.

‘At the moment market pricing sits between the 50 basis point hike we expect and a 75 basis point increase for the August board meeting, where some market participants are placing their views,’ Mr Aird said.

The 30-day interbank futures market is predicting a 50 basis point rate rise in August. 

Russia’s Ukraine invasion has pushed up petrol prices back above $2 a litre while recent flooding on Australia’s east coast has made vegetables more expensive.

‘Input costs have risen in part due to supply side bottlenecks and the war in Ukraine,’ Mr Aird said.

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