RBA cash rate predictions

RBA Cash Rate Predictions

Trying to predict where the RBA cash rate will be in 1-, 6- or 12-months’ time seems to be an Australian pastime a bit like property itself. The expression “opinions are like a**holes everyone has one” comes to mind!

We do get asked this almost daily though so here goes nothing.

Mortgage Experts Prediction:
2.60% pa by November then flat for foreseeable future.

As we have been telling everyone who will listen 2 of the major banks (CBA and Nab) haven’t even passed on the rate increases we have had so far so I expect a big slowdown in the wider economy once they fully kick in. Those two lenders account for almost 40% of the entire mortgage market!

If the cash rate hits 2.60% then a well-priced home loan would end up about 4.40% - 4.60% pa.

Major Bank Economist Predictions:
Lowest 2.60% (CBA), highest 3.35% (ANZ and Westpac).

Nab sits in the middle at 2.85%. All are predicting rates to peak towards the end of the year, early next and then to decrease a little in mid to late 2023.

Crazy Outlier Predictions:
We couldn’t really find any crazy predictions like 10% etc. I did read one article saying if inflation is at 8% in the US then their cash rate would have to be 10% to stamp out inflation but this was from a real estate agent so they should probably just stick to selling houses.
 
Bond yields and 4-year fixed rates at 4.99% pa

Fixed rates are very much influenced by the cost of money that is bought and sold in the money markets. In the 3-year bond yield chart below notice the dip in bond yields last month (August 2022). This set off a mini wave of discounting in the fixed rate market which was nice to see after months of relentless increases!     

There are a few offers at 4.99% for 3 or 4 years fixed (owner occupied and P&I repayments). While this sounds high compared to what was on offer earlier in the year (1.99% anyone?) they may prove to be good value if the RBA cash rate ends up above 3% as some experts are predicting (see above). Lenders typically add about 1.80-2.00% margin to the cash rate so home loan rates would end up at more than 5% if the cash rate gets above 3%.

Note also above the yields are on the up again and the 3-year bond yield at the time of writing sits at 3.38% implying home loan rates will be 5.38% or so in a few years’ time.  The takeaway from that is those special fixed rates on offer at 4.99% may not last much longer.