When the Reserve Bank of Australia surges the cash rate, banks and financial institutions follow the hiked rate instantly. As a result, they increase the interest rate charged on the variable rate mortgages.
After holding the cash rate at a record low for almost a year, the RBA hiked it in May 2022. The upsurge in the cash rate is an attempt to drive the economy through the pandemic effects and to tackle rising inflation.
Since then, citizens are witnessing a hike in rate every month, with mortgage providers passing it on in full. As a result, the current interest rates in Australia towards mortgages have become more expensive contrary to the one recorded at the beginning of 2022.
The cash rate forecast is unclear as inflation is still on the move. Considering the ongoing trends, senior economists have predicted how much the interest rate will go up in 2022 and the forecast for the next five years in Australia.
Joining the forecast trends, the Big Four Banks of Australia warned citizens that in 2023 the cash rate might go as high as 3.85%. So, if you have secured a mortgage or are planning to get one, you must know what effect a cash rate hike of this significant amount can have on variable-rate mortgages.
What is the RBA Cash Rate?
The RBA cash rate is the official interest rate of Australia that has lately shown an escalation to 2.85% (September 2022). The Reserve Bank of Australia influences the cash rate with a parameter of 0.25%. Either there will be an increase or decrease in the cash rate by 0.25 points.
Furthermore, the cash rate demonstrates the interest rate levied on unsecured ‘overnight’ funds. You can consider it a benchmark to drive mortgage interest rates, saving accounts rates to exchange rates.
Every month (excluding January), the Reserve Bank of Australia organises a board meeting in which the cash rate is decided. Whenever there is any change in the RBA cash rate, people witness a notable knock-on impact on the financial products’ price and the economy.
Historically, a hiked cash rate has always increased interest rates on mortgages, automobile loans, personal loans and other financial products. At the same time, decreased cash rate results in a downfall in interest rates on financial products.
The current cash rate in Australia is 2.85%.
How High Will Interest Rates Rise?
Considering the hiked cash rate, the only question is how high the interest rates will rise. Lately, the RBA raised the cash rate by 25bps making it clock at 2.85%. This surge perfectly matched the forecasts made by the economists. It was the seventh rate hike straight in a row since May 2022. The borrowing costs have crossed a bar that has not been witnessed since April 2013.
Adding to this, the board mentioned that the rates would go further high as inflation is too high in Australia, peaking at around 8%. The forecasts reveal that in 2023, the inflation rate will settle down somewhere around 4.57%. In 2024, it will show a significant relief by playing a little above 3%. Additionally, the board reiterated that they would make every possible move to achieve the predicted inflation rate. Adhering to this, the RBA also raised the Exchange Settlement balances interest rate by 25bps making it clock at 2.75%.
Answering “how much will interest rates go up in 2022”, it can go up to 3.25%. In the long run, the interest rate in 2022 is forecasted to trend around 3.85%. There will be a downfall in 2024 as the projected rate is 3.15%.
What is the Cash Rate Forecast from the Big Four Banks?
The Big Four Banks gave words on the hike in the cash rate, making a cash rate forecast for the upcoming year. Here’s what they have to say about the projected rates for the next few months.
| Bank Name | Short-Term Cash Rate Forecast | Long-Term Cash Rate Forecast |
| CBA | 3.10% (December 2022) | 2.60% (November 2023) |
| Westpac | 3.85% (March 2023) | 2.60% (2024) |
| NAB | 3.60% (March 2023) | Will Remain Steady in 2024 |
| ANZ | 3.85% (May 2023) | 3.35% (Last Quarter of 2024) |
ANZ (Australia and New Zealand Banking Group): David Plank (Senior Economist) predicted the cash rate saying the rate will further soar to a high of 3.85%. If RBA continues raising the cash rate on a 0.25 basis till May 2023, the cash rate will reach the predicted benchmark.
CommBank: Gareth Aird, an economist at CommBank, made a forecast on how much cash rates will go up in 2022. As per his projected cash rate, by December 2022, the cash rate will peak by 3.10%. Gareth Aird added that this point would pause a cash rate hike.
NAB (National Australia Bank): Alan Oster said by the end of the first quarter of 2023, the cash rate will surge to 3.60%. Per the predictions, post-March 2023, the RBA cash rate will stay stable and again fall by March 2024.
Westpac: Bill Evans (chief economist at Westpac) estimated that rooted in strong inflation, the cash rate will rise to an all-time high of 3.85% by 2023. Furthermore, there will be a cash rate cut by 2024.
Big Four Banks’ Interest Rate Forecast
You can’t escape the fact that as soon as the cash rate rises, so does the interest rate. Considering this, the big four banks have given predictions on the interest rate difference citizens will witness in upcoming months.
| Starting Month | Average Interest Rates Contingent on CBA Forecast | Average Interest Rates Contingent on Westpac Forecast | Average Interest Rates Contingent on NAB Forecast | Average Interest Rates Contingent on ANZ Forecast |
| April 2022 |
2.86% |
2.86% | 2.86% |
2.86% |
| May 2022 | 3.11% | 3.11% | 3.11% | 3.11% |
| June 2022 | 3.61% | 3.61% | 3.61% | 3.61% |
| July 2022 | 4.11% | 4.11% | 4.11% | 4.11% |
| August 2022 | 4.61% | 4.61% | 4.61% | 4.61% |
| September 2022 | 5.11% | 5.11% | 5.11% | 5.11% |
| October 2022 | 5.36% | 5.36% | 5.36% | 5.36% |
| November 2022 | 5.61% | 5.86% | 5.61 % | 5.61 % |
| December 2022 | 5.86% | 6.11% | 5.86% | 5.86% |
| February 2023 | Not Available | 6.36% | 6.11% | 6.11% |
| March 2023 | Not Available | 6.61% | 6.36% | 6.36% |
| May 2023 | Not Available | Not Available | Not Available | 6.61% |
| August 2023 | 5.61% | Not Available | Not Available | Not Available |
| November 2023 | 5.36% | Not Available | Not Available | Not Available |
| February 2024 | Not Available | 6.11% | Not Available | Not Available |
| May 2024 | Not Available | 5.86% | Not Available | Not Available |
| August 2024 | Not Available | 5.61% | Not Available | 6.36% |
| November 2024 | Not Available | 5.36% | Not Available | 6.11% |
| Cash Rate Peak | 3.10% | 3.85% | 3.60% | 3.85% |
The current interest rate in Australia stands at 5.73%, and the expected interest will go up to 6.73%% as per Australia’s big four banks.
How Would a Cash Rate Hike to 3.35% Affect Your Mortgage?
While setting the offered interest rate to the borrowers, lenders consider several factors, and one major factor is the cash rate. Any rise or cut in the cash rate impacts the variable interest rates.
The mortgage interest rates are directly tied to the RBA cash rate; thus, the interest rates on the existing mortgages rise too. Lenders can amend the interest rate even when there is no update in the cash rates. Such ‘out of cycle’ mortgage rate changes can happen anytime.
When the board increases the cash rates, the banks and financial institutions pass on the hiked rates in full to the borrowers resulting in increased mortgage repayments. Since 2010, the citizens have not witnessed any increase in the rate. But, the fast-driving inflation has somewhat increased the cash rate, and the borrowers need to prepare well as the rates are already escalating. Furthermore, the rates will keep increasing, surpassing the predicted rates of around 3%.
The major concern of the borrowers is that the mortgage interest rates have been the lowest in the past two years. Borrowers who have secured mortgages within the last two years at variable interest rates will have to pay huge repayments due to the hiked cash rate.
The current interest rate in Australia is 5.73%, but as soon as the cash rate rises, so will the interest rate. The predictions reveal that, on average, the variable interest rate will go as high as 6.73%.
What could this Percentage mean for the variable rate mortgage? To make it easy, we have crunched values to determine how much repayments will rise if the interest rate reaches the predicted level, i.e. 6.73%.
| Mortgage Amount | Monthly repayments with an average variable mortgage rate of 5.73% | Monthly repayments: with a projected average variable mortgage rate of 6.73% | Increase in repayments (on a monthly basis) |
| $500,000 | $2,912 | $3,236 | $324 |
| $750,000 | $4,367 | $4,855 | $488 |
| $1,000,000 | $5,823 |
$6,473 |
$650 |
This is how the cash rate hike will affect your mortgage repayments. Borrowers need to plan and manage their finances in an informed way to skip default payments.
After cutting the cash rate for almost a decade, the Reserve Bank Australia has raised the cash rate for the seventh month in a row. The board and the big four banks also forecast the escalation for the next two years. Strong inflation and increased cash and interest rates have left citizens wondering. The question is how high will the interest rate go. The analysis reveals it will surge for the next few months, then a pause in the second half of 2023. Citizens will witness a downfall in 2024.