When will the cash rate fall?

Welcome to the finance update for the week ending 16 September, 2023.

Contrasting movement on interest rates this week caught our attention, with two major banks taking different approaches to variable interest rates.

Westpac has increased variable rates for new customers, marking the third rate hike for its Flexi First Home Loan since March 1. In contrast, NAB has dumped their tiered rates for different deposit sizes on its basic variable rate loan, essentially slashing the rate for owner-occupiers with deposits of less than 20%.

On the subject of big banks and interest rates, in this week’s newsletter, we take a look at when the big four banks are predicting they may start to fall again.

We’re all looking for the light at the end of the home loan rate hike tunnel, and if the big four banks are to be considered experts on such matters, relief is on the horizon, but we’ve still got a bit of a wait ahead of us.

What the big four are predicting

Whilst they are all aligned on a rate cut during 2024, CBA is somewhat of an outlier in suggesting it will be early in the year. CBA also predict the cash rate will bottom out in 2024, whilst the others predict that to happen in 2025.

What is happening globally?

It’s not just the RBA that has been raising its benchmark interest rate recently. Other major global economies like the UK, the US, the EU and Canada have also witnessed rate increases led by their respective central banks.

Since many of these economies embarked on rate hikes prior to Australia, we can use their actions as potential indicators of the RBA’s future moves.

Most recently, the US Federal Reserve raised its benchmark rate to a 22-year high, signalling its ongoing battle against inflation. This has sparked predictions of a resurgence in inflation.

However, in Australia, inflation has been gradually decreasing since reaching its peak at the end of 2022. If this trend continues, the RBA may opt to maintain the cash rate at its current level, irrespective of the Federal Reserve’s actions. This would reinforce the notion that the cash rate has reached its zenith, with potential rate cuts on the horizon, possibly just months away.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.