Time to review your home loan? Westpac tips RBA to hike interest rates in August 2022

Economists at Westpac believe the Reserve Bank of Australia will be forced to lift interest rates sooner than expected, amid growing inflationary pressures and improved labour market conditions.

"Our forecast revisions reflect a much faster lift in inflation and wages growth than envisaged last June," said Westpac chief economist Bill Evans in a research note.

"We now expect one hike of 15 basis points in August to be followed by a further hike of 25 basis points in October."

Westpac had previously tipped the RBA would wait until February 2023 before making a move. Its revised forecast makes it the most bullish among the major banks. 

Assuming lenders raise mortgage rates in line with the cash rate, as will likely be the case, the average variable rate among lenders we track would jump to 3.61% p.a. 

On a $500,000 mortgage, that would mean an additional $107 in monthly repayments, or approximately  $1,280 extra paid over a year. 

The shift in expectations from the major bank comes as Australia’s unemployment rate fell to its lowest level in more than 13 years.

Though the omicron outbreak has disrupted supply chains and cratered consumer spending, Westpac expects economic activity to rebound sharply once daily case numbers ease.

The RBA has repeatedly said the chances of a 2022 rate hike are remote, pointing out that wages growth remains chronically weak and inflation lags behind many other developed countries.

But Westpac expects these key indicators will shift at a much faster pace than the RBA’s forecasts suggest.

“If [the RBA’s] forecasts prove to be accurate then the “late 2023/2024” guidance will be appropriate,” said Evans.

“But we have quite different forecasts for: inflation; wages growth and the unemployment rate.”

Along with bringing forward its timing for the next rate hike, Evans also believes the RBA will need to adopt more “contractionary policy settings to address any inflation/wages risks.”

That means once this tightening cycle is through, the cash rate could reach a peak of 1.75% by March 2024, up from Westpac’s previous prediction of 1.25%.

To work out how much you could be paying if rates do rise, use our home loan repayments calculator. And for more information on property and lending trends, browse our home loan statistics page.