When will the RBA Stop Raising Interest Rates in Australia?

The Reserve Bank of Australia's (RBA) ongoing cycle of increasing cash rates to stem inflation has caused concern for many Australian homeowners, who are unsure of when it will end.

In March 2023, the central bank raised the cash rate by 25 basis points for the tenth time that year, bringing it to 3.60 per cent. This has added to the financial difficulties of the 1 million mortgagers who are at risk of mortgage stress.

Many experts predict that interest rates will continue to rise throughout 2023, with the 'big four' banks in Australia forecasting that the cash rate will remain upward until at least the end of the first quarter. NAB predicts that the cash rate will reach 3.60% by March which has already happened before staying steady until 2024. The Commonwealth Bank of Australia (CBA) believes that the RBA's first cash rate cut will occur in November, resulting in a cash rate of 2.85% by the end of the year.

Westpac and ANZ are less optimistic, with the former predicting that the first interest rate cut will occur in 12 months, leading to a cash rate of 3.50%, and the latter predicting that it will happen in November before falling to 2.85% by November 2024.

David Plank, head of Australian economics at ANZ, justified his position by stating that he believes the RBA will be unable to ease with unemployment in the low threes and wage growth accelerating above 3.5%.

Additionally, the minutes from a recent RBA meeting clarified that “forecasts were conditioned on a path for the cash rate derived from surveys of professional economists and financial market pricing, with the cash rate assumed to increase to around three per cent by the end of 2022 and then decline a little by the end of 2024.”

Canstar's prediction is different from the big four banks, as it believes that the cash rate will exceed the highest forecast by nearly 1%. Given that the historical average cash rate over the past 33 years has been 4.6%, and that it has taken two crises, COVID-19 and the Global Financial Crisis, to bring it below 4.25%, Canstar believes that the cash rate could reach 4.6%, which is 1.5% higher than the current rate. If this occurs, it would be the equivalent of a further six 0.25% increases and would result in a total of $1,386 being added to mortgage repayments since last April.

Canstar's finance expert, Steve Mickenbecker, believes that "more rate rises look inevitable," and while the RBA may "take their foot off the pedal after another two or three cash rate increases," this could just be a breather and not necessarily a signal of imminent lower rates.

In the event that the cash rate rises to 4.60%, Canstar predicts that the average variable rate for existing borrowers would be 7.48%.

Regardless of the final cash rate, it has already caused significant financial difficulties for thousands of Australian households. Borrowers with a $500,000 loan have seen their payments rise by $88 since last April, meaning they are paying nearly $3,000 per month.

Adding another 1.5% to this equation would result in borrowers in the same situation paying an additional $498.

Mickenbecker advised borrowers to "get into as low a priced loan as they can find" as it would be beneficial even if times get tougher.