‘Rates at peak’: Westpac’s tip for RBA’s Xmas interest plans

• Westpac predicts the RBA will not hike rates when the monetary policy board meets in December, due to a weakening economy.
• Chief Economist Luci Ellis said several economic indicators, along with small hints in the RBA’s messaging, means another hike would be unlikely and “undesirable”.
• AMP Deputy Chief Economist Diana Mousina agrees, saying she predicts at this stage there might be no hikes in 2027 either.

Big four bank Westpac has strengthened its outlook on the Reserve Bank of Australia’s (RBA) December meeting, predicting that rates will stay stable heading into 2027.

Westpac’s chief economist Luci Ellis said the bank had already predicted that the rate hike cycle had ended, but strengthened its position following data that points to weaker economic growth next year.

“We already believed the RBA cash rate was likely at a peak, even if RBA officials were less convinced,” Ellis said.

“A deeper housing downturn and early signs of cracks in the consumer sector point to an even softer 2027.

“Fading inflation risks from oil also boost our conviction on rates being at a peak.”

Ellis said after looking at GDP and unemployment predictions, that lifting the cash rate in December would be unlikely, and undesirable.

What’s more, she said small clues in the RBA’s messaging after its November hike could reveal its intentions for December.

“In the media conference following the November meeting, Governor Bullock flagged that it was a good time to ‘take stock’ of the policy tightening to date,” she said.

“Both we and the market read this as a signal that the MPB would pause at the December meeting.

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“The 6:3 split vote at the meeting also suggests that some external members are more attentive to downside risks than the internal members.”

Diana Mousina, Deputy Chief Economist at AMP, told the Money Edition that she agrees with the Westpac forecast, and another rate hike in December would likely be “overkill.”

“It’s really hard to see them hiking in December,” Mousina said.

“I think that there are clear signs that the rate hikes, the five that we’ve had this year, are working as they are intended to. So I don’t, I think they would be going again, especially so soon after the last one.

“In fact, I think it’s hard to see them even doing another [cut] in 2027. But that might be a hopeful forecast.”

‘Horror Friday’: Rate call comes same day as hikes kick in

The predictions come as the majority of borrowers on variable rates will see their repayments increase from today.

All four of the big banks, and a number of smaller lenders including Bendigo Bank, passed on the RBA’s November hike to borrowers with the new rates taking effect today, November 13.

Canstar analysis shows that if the cash rate remained at this setting for 2027, a typical borrower with a $600,000 debt at the start of this year, would end up paying an estimated $2,738 more in monthly repayments in 2027, compared to 2026.

“While the majors will start charging their variable rate customers that higher interest rate from today, they’re going to give you a lot more runway before automatically hiking your direct debit,” said Canstar’s data insights director Sally Tindall.

“If you’ve got a mortgage, stay on top of which rate hike you’re paying for and what’s still to come. The five hikes in relatively quick succession can make it confusing to know whether you’re actually up to hike number three, four or five.

“While the prospect of a further rate hike isn’t off the table yet, rate cuts could not be further from the RBA’s agenda, which means borrowers will have to settle into a new norm of higher rates.”