Will RBA Cash Rate Increase in December?

Inflation has been the norm in 2022. From May to November, the Reserve Bank of Australia (RBA) has announced a hike of 275 basis points, the repercussions of which have been borne by home loan borrowers, particularly those with the ‘big 4’ banks in Australia. Now, as the year draws to an end, let’s look at how far we’ve come and what the journey forward looks like. What will the RBA decide in its December meeting? What can we expect from the interest rates for 2023? In this blog, we will take a look at the effects of interest rate hikes and the interest rate predictions for the month of December.

Impact of 2022 Interest Rate Hikes

As the regulatory authority for Australia’s monetary policy, the RBA is expected to play a major role in curbing inflation. The main tool that it uses to do so is the cash rate. By slashing the cash rate, the RBA provides liquidity in the economy and encourages spending. Alternatively, increasing the cash rate discourages people from spending.

The period of pandemic stimulus came to an end when the RBA first increased the cash rate in May 2022. Since then, the deposit and lending rates have skyrocketed. For instance, at the end of March, the variable home loan rate for owner-occupied homes sat at 3.09% per annum; right now it is 5.41% per annum.

The property market has felt the full brunt of the change, with price cuts, loss in capital, and decreased borrowing capability being responsible for one of the oddest spring selling seasons in the recent past. However, inflation continues to burn holes in Aussie pockets, diminishing real wages amidst the increasing cost of living. At least now, some savings account rates start with a ‘4’.

Westpac, CBA, NAB, and ANZ Rate Predictions for December 2022

Some of the best interest rate predictions for this year have come from one of the ‘big four’ banks, who have gladly passed on the entire rate hike every month since May. While there have been split opinion camps for the past few months, all the big four banks have come to the conclusion that another 25-point hike can be expected in December.

However, the big banks cannot come to an agreement on whether the December hike in the cash rate will be the peak of this cycle or whether we can expect more of the same in 2023.

Westpac has been the flagbearer of the pack with extreme predictions from the beginning. According to the bank’s logic, cash rate changes affect not only home loans and savings accounts but also the economic mindset.

If everyone is expecting everything to rise, Westpac states that businesses will continue to pass along the wage and cost increases- which means the spending will never slow down. However, if the Reserve Bank of Australia issues a clear message with rate hikes, it will encourage everyone to curb their spending instead.

As it stands, ANC and Westpac can agree on the prediction that the cash rate will increase by another 75 points into 2023, reaching 3.85% in May.

Commonwealth Bank has a different school of thought about the same; the bank believes that December’s decision will be the final of the increment cycle. Given below are some of the predictions regarding the RBA cash rate:

Bank Name	Dec 2022	Feb 2023	March 2023	April 2023	May 2023
CBA	3.10%	-	-	-	-
NAB	3.10%	3.35%	3.60%	-	-
ANZ	3.10%	3.35%	3.60%	-	3.85%
Westpac	3.10%	3.35%	3.60%	-	3.85%

How Can I Handle Mortgage Rate Hikes?

As recent as November 2021, the Reserve Bank of Australia had predicted that the cash rate would not be raised over the all-time low of 0.10% till 2024. Clearly, that hasn’t been the case.

In his address to the Senate committee, the RBA governor Philipe Lowe apologised to Aussie homeowners who forayed into the housing market backed by the seemingly empty promise. However, Lowe debates that rising mortgage rates and decreasing purchasing power are necessary drawbacks of combating inflation, which is slated to subside by 2024.

In the meanwhile, increasing mortgage rates will continue to be the arch-nemesis for Australian household budgets. Here are some of the strategies that you can use to combat inflation rates and keep up with repayments:

• Budget Relentlessly. Particularly with the holiday season just around the corner, the time is here to carefully plan out your expenses for the month and determine what you can afford to give or take
• Pay Off Principal to Save Interest. A lot of Aussies still have savings left from the pandemic. If at all possible, you should consider making additional repayments to reduce the amount of interest you have to repay
• Have a Conversation With Your Lender. Your lender can help you devise a way to manage your repayments, or in some cases, they might even lower the rates- you might be pleasantly surprised by how much you can achieve out of this.
• Go Green. Recent studies have shown that equipping your house with energy-efficient features can add up to 10% in home value and possibly make you eligible for a green home loan. These loans usually come with lower interest rates and additional rewards
• Compare Home Loan Offers. Even though refinancing can involve tedious paperwork and infinite hoops to jump through, it’s much better than sticking to a home loan that you simply cannot afford. You should compare multiple home loan offers to see if you can save money by switching to a better offer. Be on the lookout for features like redraw facility, low interest rates, or offset accounts.