Tuesday 20 September 2022 02:23 AM Westpac now expecting an extra rate rise next year taking cash rate to 3.6 per ... trends now
Borrowers are in for more bad news with Westpac expecting an extra interest rate next year to tackle the worst inflation in three decades.
The bank's chief economist Bill Evans has revised Westpac's forecasts to have the Reserve Bank of Australia raising the cash rate to a 10-year high of 3.6 per cent by February next year.
Previously, Westpac was expecting a 3.35 per cent cash rate, with its new prediction at the top end of what the Big Four banks are expecting.
Westpac sees the RBA cash rate hitting the highest level since June 2012.
Should Westpac's forecasts come true, a borrower with an average $600,000 loan would be owing $1,116 more a month to the bank, compared with early May when the cash rate was still at a record low of 0.1 per cent.
Compared with now, this borrower would owe an extra $456 a month by February, as their repayments climbed to $3,422 from $2,966.
As recently as May, this borrower would have owed $2,306 a month paying off a typical loan with a lower variable rate.
Mr Evans said the RBA's priority would be tackling the worst inflation in 32 years, with an extra 0.25 percentage point rate rise, compared with Westpac's earlier forecast, designed to 'achieve the objective of wringing inflation out of the system'.
'Given these extreme circumstances around the build up of inflationary pressures central banks will take the policy of "least regret",' he said.
'Which will be to err on the side of containing inflation at the potential cost of growth in the near term.'
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Borrowers are in for more bad news with Westpac expecting an extra interest rate next year to tackle the worst inflation in three decades (pictured is a Melbourne auction)
Borrowers since May have endured five straight monthly interest rate increases, taking the cash rate to a seven-year high of 2.35 per cent.
The 2.25 percentage points of rate rises have marked the most aggressive monetary policy tightening since 1994, ending the pandemic-era of a record-low 0.1 per cent cash rate.
Westpac is expecting another 0.5 percentage point rate rise in October that would take the cash rate to a nine-year high of 2.85 per cent.
This would also be above the 2.5 per cent level the Reserve Bank Governor Philip Lowe considers to be neutral, and would be the fifth straight 50 basis point rate increase.
Mr Evans said Dr Lowe's appearance on Friday before the House of Representatives Economics Committee had convinced him the RBA would prefer to increase rates at a more aggressive pace.
'There were significant remarks in the parliamentary hearing on Friday that suggest he will err on the side of a higher rate before deciding to scale back the pace of tightening,' he said.
'We now expect the Governor to decide to push the rate more clearly into his best estimate of
