Yahoo Finance Interest rates rising against RBA's 'hold decision' as these Aussie banks 'hedge bets'
A number of banks have hiked their home loan interest rates, despite the cash rate remaining on hold.
The Reserve Bank of Australia (RBA) has kept the cash rate on hold at a 12-year high of 4.35 per cent. But don’t let out a sigh of relief just yet.
One expert told Yahoo Finance that banks could still put up their interest rates at any moment. In fact, some already are.
Despite the official cash rate being on hold for the last five months, several lenders have been hiking their fixed interest rates. This comes after a trend of banks reducing interest rates earlier in the year when a cash rate cut was firmly on the cards for 2024.
Mozo personal finance expert Rachel Wastell told Yahoo Finance banks used fixed rates as a way to “hedge their bets” as many economists push back their interest rate cut forecasts to 2025.
Which banks are putting up interest rates?
Macquarie, Australia’s fifth biggest bank, has increased interest rates for most of its fixed-term loans by 0.25 per cent.
HSBC has also increased rates across nearly all terms by 0.20 per cent, while Great Southern Bank has hiked rates by 0.25 per cent across all terms.
MOVE Bank was also among the 10 lenders hiking rates, increasing one, two and five-year fixed rates by between 0.30 and 0.35 per cent this month. Other banks who have recently hiked fixed rates include Bank Australia, ME Bank and Teachers Mutual Bank.
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“It does reflect that shift in the market and the consensus that a cut isn’t really coming anytime soon,” Wastell said.
Wastell believes more lenders will jump on the fixed rate hiking trend, particularly lenders who were a “little bit cut heavy” and now want to “make sure they cover their tracks”.
When does the RBA think inflation will drop?
The RBA has warned it will be "some time yet" until inflation hits the 2 to 3 per cent target, with the board needing "to remain vigilant to upside risks" in a crushing blow to borrowers teetering on the edge.
"Inflation is easing but has been doing so more slowly than previously expected and it remains high," it said in its monetary policy decision statement.
"The Board expects that it will be some time yet before inflation is sustainably in the target range.
The latest figures showed inflation rose to 3.6 per cent in April, ticking up from 3.5 per cent in March and down from a peak of 8.4 per cent in December 2022.
The board noted the momentum in economic activity was weak, with the economy growing by just 0.1 per cent in the March quarter, the unemployment rate now at 4 per cent and "slow-than-expected wages growth".
It said the path to returning inflation to target "remains uncertain" and reiterated it was "not ruling anything in or out".
When will interest rates come down?
The central bank’s decision to keep the cash rate steady was widely predicted by economists.
But economists are still split on when the RBA will start cutting rates.
A survey by Finder found 44 per cent thought rates would still come down in 2024, the rest have their bets on 2025.
When do banks think rates will come down?
ANZ became the first of the Big Four banks to push back its interest rate cut prediction back to 2025. The other three still have their bets on a 2024 cut.
Here's the predictions for the next 18 months:
ANZ
First cut: February 2025
Number of cuts before December 2025: 3
Final 2025 cash rate predicted: 3.60 per cent
CBA, NAB and Westpac
First cut: February 2025
Number of cuts before December 2025: 3
Final 2025 cash rate predicted: 3.60 per cent
Borrowers warned banks always ‘moving’ interest rates
While variable rates have been more stable than fixed rates, Wastell said that doesn’t mean customers were safe from rate hikes.
“People don’t really realise and think because the cash is steady, it’s fine. But mortgage holders need to be checking their rates,” Wastell said.
“There is a high probability the banks are still moving. It might be a little shift here and there, but just because the cash rate is on hold doesn’t mean variable rates aren’t moving.”
Wastell said this was particularly the case for home loans offered to new buyers and urged existing borrowers to "keep an eye on" what lenders were currently offering.
Banks do not have to move their interest rates in line with the cash rate. On the flip side, this also means borrowers can’t assume that any RBA cuts will be passed on to them in full.
“Your bank does not have to move with the cash rate, and history has shown that they don’t always pass on the cuts in full," RateCity research director Sally Tindall told Yahoo Finance.
Troubling interest rate sign
RateCity analysis found none of the major banks passed on all the RBA’s cash rate cuts in full when they happened in 2019 and 2020.
The RBA cut rates by a total of 1.40 per cent over that period, while Australia’s biggest bank Commonwealth Bank only cut variable rates by 0.82 per cent.
“While cuts will almost certainly come at some stage, borrowers cannot automatically assume that, when the RBA does pull the downward lever on rates, this relief will be passed on in full to them, especially if there are a series of rapid cuts,” Tindall added.
Monthly home loan repayments have risen by about $1,500 per month since the rate hiking cycle began in May 2022. According to Canstar, repayments on a $600,000 loan over 30 years are now $4,085.
A number of households are yet to feel the full impact of the RBA rate hikes, with thousands of borrowers who took out a low fixed-rate loan during the pandemic about to roll onto a higher variable rate.
Finder estimates roughly 891,000 mortgage holders will be stung with higher rates, which can be almost three times higher.
Around 30 per cent of mortgage holders were estimated to be in mortgage stress in April, an increase of 0.5 per cent from the previous month.
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