Commonwealth Bank has led the way in fully passing on the Reserve Bank’s latest rate hike to customers.
Most important points:
- The target for the spot interest has been increased by 0.5 percent
- The four major banks have increased variable mortgage rates in line with the May and June increases
- Some economists predict an increase of another half a percentage point in August
The CBA said it would bring the default variable interest rate for owner-occupiers paying principal and interest to 5.8 percent from July 15.
The equivalent home loan rate to investors will also rise 50 basis points to 6.38 percent.
The bank also said it would pass the full rate hike on to its bonus interest accounts GoalSaver and Youthsaver and introduce a time deposit of 2.5 percent for 15 months.
None of the other major banks had announced a move as of 10:30 a.m. AEST.
A few days before Tuesday’s rate decision, Commonwealth Bank had raised its fixed mortgage rate by 1.4 percent†
The RBA Has Raised Official Cash Interest Rates by half a percentage point to 1.35 percent on Tuesday, the highest since May 2019.
When lenders pass the 0.5 percentage point increase, the average owner-occupier with a $500,000 loan and 25 years left will see their repayments increase by $137, according to RateCity.
If we add up the May, June and July increases, the total increase in monthly repayments comes to $333.
‘Extraordinary support is no longer necessary’
The central bank has raised the spot interest rate for three consecutive months to quell rising inflation.
Tuesday’s highly anticipated double rate hike saw the ASX 200 closes 0.3 percent higher, at 6,629 points†
RBA Governor Philip Lowe said the board was determined to do whatever it took to ensure inflation in Australia returned to its target of 2 to 3 percent.
“Today’s rise in interest rates is another step in the withdrawal of the extraordinary monetary support put in place to help insure the Australian economy against the worst possible effects of the pandemic,” he said in a statement.
dr. Lowe said the size and timing of future rate hikes will be determined by incoming data and the board’s assessment of the outlook for inflation and the labor market.
The June Consumer Price Index (CPI), which measures household inflation, is expected to be released on July 27.
The RBA still expects inflation reached 7 percent later this year — up from 5.1 percent currently — but says it will peak later this year and fall back to the 2 to 3 percent range next year.
A balancing act
Federal treasurer Jim Chalmers echoed the RBA’s forecast on Tuesday, saying inflation will “get worse before it gets better.”
“The government changed hands at a time of high and soaring inflation, skyrocketing interest rates and falling real wages, and we’ve inherited a trillion dollars in debt that is now more expensive to pay off,” said Dr. Chalmers.
The central bank is also signaling further rate hikes in the coming months.
NAB and ANZ have both forecast an increase of half a percentage point next month.
Meanwhile, the CBA predicted a quarter of a percentage point increase in August, September and November, pushing the cash interest rate to 2.1 percent by the end of the year.
The CBA expects the Australian economy to slow, but not stagnate.
It said the economy was tipped to grow by 3.5 percent in calendar year 2022 and grow another 2.1 percent the following year.
Banks urged to pass on interest rate hikes to savers
On the other hand, James said that higher interest rates are an advantage for savers.
“It’s important to remember that household deposits have increased by 28 percent or $283 billion since COVID hit in February 2022,” he said.
However, banks have been slow to fully pass on the last two rate hikes to savers while trying to increase their profit margins by taking the savings rate.
Treasurer Jim Chalmers said he was concerned that rate hikes would not be passed on to savers as quickly as rate cuts.
“I think that’s the reality, and I think that’s disappointing,” he said.
“If people aren’t getting the kind of returns they should get from their savings, I’d also encourage them to shop around and find a bank that’s willing to treat you better.
While some banks have matched or even exceeded the RBA’s rate hikes for their depositors, customers of the four major banks have yet to see the full rise in their savings accounts from the May and June surges.
RateCity analysis shows that the four major banks have increased their savings rates by an average of 0.46 percentage points during the last two rate hikes.
“What the banks decide to pass on and when has been a bit of a dog breakfast,” said RateCity research director Sally Tindall.
Additional reporting by Jake Evans
Posted † updated
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