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What does a 40bpts hike actually look like? Here's what Westpac's prediction could mean for you

What does a 40bpts hike actually look like? Here's what Westpac's prediction could mean for you

One of Australia’s biggest banks, Westpac, has revealed it now expects the Reserve Bank of Australia to hike the cash rate by a whopping 40 basis points in June.

Historically, the Reserve Bank of Australia (RBA) has moved the cash rate in 25 basis point increments, except for a mid-month emergency 15 basis point cut in November 2020 in response to Covid-19.

Experts from Westpac previously stated they expect a series of cash rate hikes to start in June, reaching 2% by June 2023. The cash rate is currently sitting at an historic low of 0.10%. A 40 basis point hike would be a substantial increase, impacting the mortgages of millions of Australians.

Bill Evans, chief economist at Westpac, revised the forecast for the cash rate as a result of inflation levels rising much faster than previously anticipated.

And RBA Governor Philip Lowe has long maintained that the central bank will not entertain a rate hike until key inflation targets of 2-3% are met.

Westpac now expects underlying inflation in the first three months of 2022 to increase from 0.9% to 1.2%. This would result in annual underlying inflation for the March quarter to reach 3.4%.

“On the basis of those forecasts, we expect the RBA will decide to lift the cash rate by 40 basis points at its board meeting on June 7,” said Mr Evans.

“We accept that there is a risk that the board would be concerned about such a large move at the beginning of the cycle with implications for confidence.”

“A possibility might be for a more cautious 25 basis point lift in June to be followed by the 40 basis point move in July,” he said.

How a rate hike could impact your mortgage repayments

So, what does a 40 basis point hike actually mean for your mortgage repayments?

RateCity has crunched the numbers and discovered that homeowners could pay $100 more per month in mortgage repayments come June if this prediction comes true.

On the average variable owner-occupier home loan rate from the big four banks (paying principal and interest) of 2.17%, this may be the impact of a 40 basis points hike on different loan amounts.

Impact of a 40bpts hike in June

Loan amountRepayments in May 2022Repayments in June 2022Difference

$350,000

$1,582

$1,651

$69

$500,000

$2,161

$2,260

$99

$650,000

$2,809

$2,938

$129

$800,000

$3,457

$3,616

$159

$1,000,000

$4,322

$4,520

$198

Source: RateCity.com.au.

Note: Based on hypothetical home loans and latest Westpac hike predictions of 40 basis points increase in June 2022. Based on average big four bank basic owner-occupier variable interest rate with monthly principal and interest repayments.

For a homeowner on a $500,000 mortgage, this hike could be the monthly equivalent of an additional gym membership or phone bill.

Westpac is not the only big four bank to make predictions on future cash rate hikes. Previously, RateCity research showed that if the most extreme forecast of a 2.25% cash rate by August 2024 by NAB came to fruition, homeowners may be paying almost $500 a month more in the next two years.

Forecast cash rate hikes: big four banks

  • CBA: hikes to start in June. Cash rate to reach 1.25% by February 2023.
  • Westpac: hikes to start in June. Cash rate to reach 2.00% by June 2023.
  • NAB: hikes to start in June. Cash rate to reach 2.25% by August 2024.
  • ANZ: hikes to start in June. Cash rate to reach 2.00% by November 2023 and peak above 3.00%, but not until sometime after 2023.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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