The Commonwealth Bank has hiked its four-year fixed rate while cutting its one- and two-year rates in a sign the bank expects a higher rate environment to set in by 2024.
The bank has increased its lowest available four-year fixed rate by 20 basis points, taking it from 1.99 per cent to 2.19 per cent.
At the same time, it has cut its one-year rate by 10 basis points to 2.09 per cent, and its two-year fixed rate by 20 points to 1.94 per cent.
CommBank’s move makes it the first major bank to hike four-year owner-occupier rates since October 2019.
Fixed rates (lowest)
Rates are for owner-occupiers paying principal and interest on a package loan.
“The bank is giving with one hand, and taking away with the other, hiking its four-year fixed rate by the same amount for new customers,” research director at RateCity.com.au Sally Tindall said.
“It’s not surprising CBA has decided to raise its four-year fixed loan – the bank is pricing in at least one cash rate hike over this time.
“[Reserve Bank of Australia] Governor Philip Lowe has repeatedly said the first round of cash rate hikes wouldn’t be until at least 2024, but that’s only three years away.”
She said other banks may also begin increasing rates in the next few months as they also move to price in an official interest rate hike from 2024.
“Someone who fixes their rate for four years today could very well see variable rates go up within that time, provided the economic recovery stays on track,” Tindall said.
All eyes on the Reserve Bank
House prices increased 2.1 per cent over February, the highest monthly increase since 2003.
Bankwest Curtin Economics Centre’s Rebecca Cassells has suggested the RBA may be forced to move in the second half of 2022.
“There’s an increasing prospect of interest rates being lifted earlier than the 2024 timeline that the RBA has offered up in recent statements. This could be as early as the second half of 2022 if the labour market continues to respond and prices continue to push upwards - particularly through the housing market,” Cassells said.
“Whether this activity will be enough to reach the 2 per cent inflation threshold will remain to be seen, but it’s certainly more likely now than it was [in early February].”
KPMG Australia chief economist Dr Brendan Rynne agreed, adding on Monday that the RBA may also have to review its timeline as the Australian economy strengthens ahead of schedule.
“We expect to see strong performance in the Australian economy, with GDP boosted by the unlocking of pent-up demand from a lockdown-affected 2020 - but this will start to taper off in 2022,” Rynne said.
“Our forecasts on inflation (rising) and unemployment (falling) mean that by next year the RBA will come under pressure to review its pledge to keep ultra-low interest rates until 2024. The inflation genie is still in the bottle but can definitely be seen edging up the sides.”