One of the big four Australian banks has made a shocking prediction about the future state of interest rates.

As Australians grapple with the increasing cost of living and the looming threat of further rate rises, Westpac has made a surprising prediction.

The big bank published a weekly report on Monday that forecast seven interest rate cuts in 2024 and 2025.

The welcome news for homebuyers and homeowners was tempered by the more immediate forecast that predicted rates would soar to 4.1 per cent in just four months.

The rate would be the highest in more than a decade if Westpac’s forecast rises in March, April and May come to pass. The cash rate stands at 3.35 per cent.

The bank expects rates will remain paused at that dizzying height until the beginning of next year when the cuts will begin.

Westpac chief economist Bill Evans noted that slashing rates this year would negatively impact the inflation rate.

“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,” he said.

The bank forecasts inflation will be around 4 per cent by the end of the year and will fall a percentage point during 2024.

Westpac does not envisage that inflation will reach the 2-3 per cent target until June 2025.

The recent report comes as a surprise to Westpac customers after the bank insisted the cash rate would peak at 3.85 per cent in May this year.

“We still see the date of the peak as May 2023 but now see that peak as slightly higher,” Mr Evans said.

The chief economist said the updated forecast takes into account the three rate rises it expects the Reserve Bank of Australia to hand down over the next four months.

Minutes from a recent Reserve Bank of Australia board meeting reveal that homeowners with variable home loans will be facing record high repayments.

“Interest rates on variable rate home loans had risen substantially over preceding months and required mortgage payments were projected to reach their highest level on record (as a share of household disposable income),” the minutes said.

“Nonetheless, members noted that measures indicate the extra savings accumulated in Australia over the preceding three years were very large.”

Westpac interest rate forecasts:

MARCH 2023: Increase to 3.6 per cent

APRIL 2023: Increase to 3.85 per cent

MAY 2023: Increase to 4.1 per cent

MARCH 2024: Cut to 3.85 per cent

JUNE 2024: Cut to 3.6 per cent

SEPTEMBER 2024: Cut to 3.35 per cent

DECEMBER 2024: Cut to 3.1 per cent

MARCH 2025: Cut to 2.85 per cent

JUNE 2025: Cut to 2.6 per cent

SEPTEMBER 2025: Cut to 2.35 per cent

Since May last year, borrowers have been hit with nine consecutive rate rises.

The RBA has aggressively raised interest rates in a bid to tame runaway inflation, which reached

7.8 percent in December.

It was a peak not seen since 1990 in Australia.

Author:

Adelaide Lang