Interest rates 2023 – how high will they go ?
The current interest rate rises that started in May 2022, came earlier than the Reserve Bank of Australia predicted. From a starting point of 0.10% there was an inevitability that rates would increase. The increase in May 2022 did come as a bit of a shock. The next seven consecutive months then saw rises of between 0.50% and 0.25%. The current Jan 2023 rate is 3.10%.
So where will interest rates go during 2023 ?
Whilst we are not economists or forecasters for rates, some of the leading economists have the following to say:
WESTPAC, Bill Evans believes there will be a further three interest rate increases before being cut during 2024. Westpac amended their forecast for the cash rate to reach a high of 3.85% in June 2023 and remain the same until Dec 2023, before returning to a low of 2.85% in Dec 2024.
CBA, Gareth Aird is a little more positive on the rate increases and predicts that one more increase in Feb 2023 will see a peak rate of 3.35% with the rate rises then on pause.
ANZ, David Plank predicts the same as Westpac, that the cash rate will reach a high of 3.85% by May 2023, with three more hikes over the next three months.
NAB, Alan Oster suggests that the cash rate will have two more rises and peak at a high of 3.60% by March 2023 and then remain stable for the rest of the year before lowering in March 2024
As you can see even the so-called experts are unable to agree on where they are going, however all of the Big Four economists agree they are going to increase at lease a little bit.
What’s driving the cash rate increases ?
The RBA are concerned about inflation and their target range of 2-3%. The RBA have forecast that inflation over the year to December 2022 could be 8 per cent and that high prices would be around for longer. CPI inflation to remain as high as 4.7% during 2023 and remaining above 3% during 2025. A major lever that the RBA can use to reduce inflation is to increase interest rates.
In it’s minutes to the meeting on Dec 6th (The RBA does not meet in January) there was interesting reading:
The Board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments. Household spending is expected to slow over the period ahead although the timing and extent of this slowdown is uncertain.
The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course. It is closely monitoring the global economy, household spending and wage and price-setting behaviour.
The size and timing of future interest rate increases will continue to be determined by the incoming data. Also the Board’s assessment of the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.
What can you do with rising rates ?
As the lending slows down on new purchases, the rate war heats up between Banks. They offer lower variable rates and sometimes cash back incentives to lure customers from their current Bank. This is good news for the consumer in that they can choose a new lender and lower their repayments.
If you are on a fixed rate with your current lender that is much lower than any variable rate available.
a) you would lose the benefit of that rate and
b) Your Bank may charge you for breaking the fixed rate.
In recent times the Bank would rather cancel your current 2.09% Fixed Rate then lend that money elsewhere at 5.49%.
Definitely worth talking to Red10 Finance about whether or not there is a better deal out there for you ! Remember that the next meeting of the RBA is on 7th February 2023 at 2.30pm AEDT.
