The Reserve Bank will pause its record-breaking run of interest rate hikes in April as the economy slows faster than expected, according to one major bank.

Westpac chief economist Bill Evans adjusted his rate horizon in a note published on Friday, saying the big-four bank now expects the official cash rate will peak at 3.85 per cent in May – down from 4.1 per cent in earlier predictions.

The RBA’s cash rate target is currently 3.6 per cent, having risen 10-times in a row from a record low 0.1 per cent in May 2021.

Mr Evan’s forecasts, which predict the RBA will finish its rate hike cycle almost a year to the day after it began, are based on an apparent “about face” from governor Philip Lowe after a hawkish start to 2023.

Dr Lowe surprised markets in February when he suggested multiple rate hikes were still needed to curb inflation, leading economists to predict a grim picture for mortgage bills in early 2023. But, just weeks later, that’s now changing. 

“The tentative signal in March was much changed from the
confident signal in February,” Mr Evans said of the RBA’s March hike.

Mr Evans said those signs included the latest NAB business survey, February unemployment data, and the February retail sales report.

“We have now seen the main business survey (NAB), which showed
that business confidence fell quite sharply, although business
conditions, while weaker still held at above average levels,” he said.

Westpac still predicts one further rate hike after the RBA pauses in April, with the May RBA meeting likely to increase interest rates by 0.25 percentage points.

“For the following board meeting in May, the issues will be more clear-cut,” Mr Evans said.

“The board will have the benefit of refreshed staff forecasts, especially for inflation following the March quarter inflation report (due April 26). Note that the monthly inflation indicator reports do not include estimates of core inflation measures such as the trimmed mean.”

Big banks pass on higher interest rates

Also on Friday, mortgage holders with Commonwealth Bank, NAB and ANZ will see their home loan bills rise by 0.25 percentage points as the RBA’s March hike takes effect.

A owner-occupier with a $500,000 debt last May and 25-years remaining on their loan will now face monthly repayments of $3318 – about $983 more than it was last May when the RBA began increasing rates, according to RateCity data.

The lowest variable rate among the big four banks is Westpac, which has 5.14 per cent for two years, before reverting to 5.54 per cent.

Commonwealth Bank offers the lowest ongoing variable rate at 5.32 per cent.

The RBA’s next interest rates decision will be handed down on April 4.