Westpac has led the way as the first major bank to pass on the full value of the Reserve Bank’s surprising rise in interest rates to mortgage borrowers.
Most important points:
- The RBA has raised the cash interest rate by 0.35 pc. to 0.85 pc
- Banks are expected to pass the full rate hike on to borrowers, but not to savers
- Some economists predict an increase of another half a percentage point in July
Westpac said it would raise variable interest rates on home loans by half a percentage point from June 21.
The bank also said it would introduce a 2.25 percent 12-month term deposit rate for savers from June 9, while reviewing other deposit rates.
When the banks pass on the rate hike in full, the rate hike will add $133 per month to a $500,000 loan over 25 years, and $265 per month to a $1 million loan.
“We know that a change in interest rates affects every budget differently,” said Chris de Bruin, CEO of Westpac Consumer and Business Banking.
“Our customers have carefully managed their finances during the pandemic, with many putting more money aside in their savings and contra accounts.
“This means the majority of our customers are anticipating their mortgage payments and have a buffer available to help them manage a rate hike.”
The RBA has raised interest rates for the second time in two months. yield a more than expected increase of half a percentage point†
The June rate hike is the largest increase since 2000, bringing the target for the spot interest rate to 0.85 percent in an effort to curb rising inflation.
The cost of living had risen 5.1 percent over the past year which was exacerbated by global supply chain disruptions and the war in Ukraine.
Reserve Bank governor Philip Lowe said inflation is expected to rise further before falling back to the 2-3 percent target next year, signaling more rate hikes on the way.
The jumbo rate hike shocked the stock market, with the ASX 200 plunges 1.5 percent to 7,096†
Another outrageous walk predicted for July
The CBA, Westpac and Deutsche Bank forecast another half a percentage point increase in July, while ANZ predicted the RBA would rise a quarter of a percentage point next month and rise half a percentage point in August.
“One or two rate hikes through the remainder of 2022 are possible if the data remains ‘resilient’ despite all the different pressures households face,” David Plank, head of Australian Economics at ANZ, said in a note.
The CBA expected the target for the cash interest rate to reach 2.1 percent by the end of the year, while Deutsche Bank said it could meet that target as early as October.
“At that point, we think the RBA will likely pause in reviewing inflation and wage data in the second half of the year against a backdrop of ‘neutral’ policy settings,” said Phil O’Donaghoe, Deutsche Bank chief economist in a statement. press release. Remark.
‘Serious savers should shop’
Other major banks are expected to follow suit by passing the full rate hike on to borrowers rather than savers.
Sally Tindall, research director at RateCity, said savers hoping to get a big boost from the RBA increase “don’t hold their breath.”
“After the May RBA hike, banks were quick to raise their mortgage rates, but two out of five banks failed to meet their savings rates,” she said.
“For the banks that raised savings rates, in many cases only selected accounts were raised, while others remained eerily low.”
The latest APRA statistics for April show Australian households have a record $1.27 trillion in the bank, an increase of $281 billion since the pandemic.
“As a result, serious savers may need to shop around and be prepared to jump through a few hoops to qualify for higher interest rates.”
Posted † updated
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