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Commonwealth Bank's surprising RBA interest rate call

The Reserve Bank is expected to raise interest rates next week and Commonwealth Bank says there’s a risk it could be bigger than expected.

Commonwealth Bank branch. Australian money.
Commonwealth Bank is warning Aussies they could be in for a supersized hike. (Source: Getty)

The Reserve Bank (RBA) is widely tipped to increase interest rates by 0.25 per cent when it meets next week, but one major bank said they could go higher.

Commonwealth Bank has warned Aussies that a 0.40 per cent hike - followed by a pause - could be on the table.

“We believe there is a non-trivial risk the RBA raise the cash rate by a larger 40 basis points, to 3.50 per cent, and also announce an intention to hold the policy rate steady over the period ahead - if economic developments evolve broadly in line with their updated forecasts,” Commonwealth Bank’s head of Australian economics Gareth Aird said.

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Aird said this level was “sufficiently restrictive” for the board to feel comfortable and to have time to assess the impact of previous rate hikes.

Commonwealth Bank said there was a 25 per cent chance of this supersized hike. However, it still thought there was a 65 per cent chance of a smaller 0.25 per cent hike.

$76 more a month

If the RBA does lift rates by 0.25 per cent, this would see the cash rate rise to 3.35 per cent - its highest in more than a decade.

Analysis by RateCity found the average borrower with a $500,000 loan could be paying $76 more a month if this happened. In total, borrowers would be forking out an additional $908 per month since the rate hikes started in May.

“Borrowers are looking at the ninth hike in as many meetings, taking the cash rate to the highest level since September 2012,” RateCity research director Sally Tindall said.

“For the average existing owner-occupier, this could see their mortgage rate climb to over 6 per cent and their monthly repayments rise by just under 40 per cent since the start of May.”

Experts predict the cash rate will continue to rise in 2023. A Finder poll of 44 experts and economists forecast the cash rate to eventually peak at 3.75 per cent. Three quarters of the experts thought the RBA would pause increases in March.

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