Westpac, one of Australia’s leading banks, has made a surprise call on interest rates lowering its forecast that the cash rate will be hiked as high as 4.1 per cent. Instead, the major bank has predicted that interest rates will peak at 3.85 per cent and that the Reserve Bank of Australia (RBA) will even put a pause on any rates hikes in April.
This comes as welcome news for many Australians who have seen their borrowing costs increase significantly over the last few years. Westpac chief economist Bill Evans has predicted the interest rates will be raised for a final time this year in May to 3.85 per cent.
The decision by Westpac to lower its interest rate forecast is based on a number of factors. Notably, the Australian economy has been slowing since the start of the year. This has been largely driven by weak consumer spending and weak business investment. As a result, inflation has been running below the RBA’s target of 2-3 per cent, which has put pressure on the central bank to keep rates on hold.
Mr Evans commented despite the positive numbers of a stronger than expected unemployment rate, an increase of 64,600 jobs, and a decrease in the unemployment rate from 3.7% to 3.5%, wage growth remains weak.
“If regional banks with assets below $250 billion face a credit squeeze, with markets, regulators, and rating agencies limiting their capacity to support small and medium enterprises and small businesses, which account for up to 50% of the total market, a major impediment to the US economy will arise,” Mr Evans said.
He anticipates the RBA will be unable to continue increasing interest rates after June due to deteriorating economic conditions and does not foresee any additional interest rate hikes for the year 2023.
Mr Evans further asserted the reduction of interest rates will commence in the second quarter of 2024, spanning the months of March to May.
Warnings have been issued that Aussies could fall into the trap of becoming a “home loan hostage,” a term coined to describe customers who may not realize that seemingly minor life decisions could influence their capacity to refinance their mortgage with a different lender, and these predictions serve as a warning.
