But rates will continue to rise before falls begin, economist warns
Westpac has released a report predicting seven rate cuts in 2024 and 2025.
That good news was mitigated by the bank’s prediction that rates would continue to rise in the short term, hitting 4.1% over the next four months, The Australian reported.
If Westpac’s forecast for rate rises in March, April and May comes true, the cash rate would hit its highest level in more than a decade.
The cash rate currently stands at 3.35% after nine consecutive rate hikes.
Westpac predicts that after rates hit 4.1%, they will pause at that level until 2024, when the bank expects cuts to begin, The Australian reported.
Westpac chief economist Bill Evans told the publication that cutting rates this year would negatively impact inflation.
“While we expect the economy to stagnate in the second half of 2023, there will not be sufficient progress in bringing inflation into line with the target before the end of 2023 to accommodate earlier rate cuts,” Evans said.
Westpac predicted that inflation would be around 4% by the end of 2023 and will fall a percentage point during 2024, The Australian reported. The bank does not believe that inflation will hit the Reserve Bank’s 2-3% target rate until June 2024.
Read next: Borrowers should prepare for up to three more rate rises
The report revises Westpac’s earlier prediction that the cash rate would peak at 3.85% in May.
“We still see the date of the peak as May 2023, but now see that peak as slightly higher,” Evans said. He told The Australian that the revised forecast accounts for the three rate rises Westpac expects from the RBA over the next four months.
Westpac’s revised forecast agrees with NAB’s, which also tips inflation to hit 4.1% in May.
Westpac interest rate forecasts
- March 2023: Increase to 3.6%
- April 2023: Increase to 3.85%
- May 2023: Increase to 4.1%
- March 2024: Cut to 3.85%
- June 2024: Cut to 3.6%
- September 2024: Cut to 3.35%
- December 2024: Cut to 3.1%
- March 2025: Cut to 2.85%
- June 2025: Cut to 2.6%
- September 2025: Cut to 2.35%
The RBA has aggressively hiked interest rates in an attempt to curb inflation, which hit 7.8% in December – a peak not seen in Australia since 1990, The Australian reported.
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