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Westpac predicts 7 rate cuts, but more mortgage pain first

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If accurate, the cash rate would peak at a brutal 4.10% before coming down in 2024–2025.

Westpac chief economist Bill Evans is predicting more cash rate increases from the Reserve Bank of Australia (RBA), with a peak of 4.10% in May.

If accurate, borrowers could be looking at 3 more increases to the cash rate until May.

The Westpac bulletin notes that "the [RBA] board has adopted a more hawkish approach since the release of the December quarter inflation report".

Combating inflation is the entire rationale behind these rapid rate rises.

The cash rate or the official cash rate target affects lenders' borrowing costs. It acts as a benchmark for interest rates, especially for home loans. And the RBA has raised the rate at every board meeting since May of last year.

This has increased the average borrower's home loan repayments by around $1,000 a month.

How much would a 4.10% cash rate impact your finances?

The cash rate is now 3.35%. A peak of 4.10% would mean an extra 75 basis points added to most borrowers' home loan interest rates.

The lowest variable rate owner-occupier home loan in Finder's database is 4.74%. Assuming lenders pass on these rate rises in full (they usually do), this rate would rise to 5.49%.

The average new Australian mortgage is now $604,346. Let's assume a 30-year loan term.

  • Your monthly repayments at 4.74% = $3,149
  • Your monthly repayments at 5.49% = $3,428

Those cash rate rises would cost you an extra $279 a month.

But there's some good news in the Westpac forecast. The bank predicts the cash rate to start falling from March 2024, bottoming out at 2.35% in December 2025.

Of course, it's much harder to make accurate predictions the further ahead you forecast, so take all this with a gigantic grain of salt.

But if the cash rate did fall to 2.35%, that would be a 175-basis-point cut from the predicted 4.10% peak.

Using the same examples from above, if your home loan rate peaked at 5.49%, it would fall to 3.74%.

Here's how this would affect your repayments on a $604,346 loan:

  • Your monthly repayments at 5.49% = $3,428
  • Your monthly repayments at 3.74% = $2,796

This would be $632 cheaper. But December 2025 is a long way away when you're paying more than a thousand dollars a month extra on your mortgage.

Getting slammed by the cost of living and rate rises? Compare rates and refinance your home loan.

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