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NAB's hike could push RBA to cut interest rate

Lucy Dean
Image: Getty
Image: Getty

NAB’s decision to hike standard variable rates by up to 0.16 per cent yesterday could be the straw that broke the RBA’s back, prompting an interest rate cut.

The Reserve Bank of Australia is set to hand down its first interest rate call of 2019 on Tuesday 5 February following 26 months at its current record low of 1.5 per cent.

While months ago a move to cut would have been considered a surprise, more economists are now beginning to flag the likelihood.

“We think that 2019 will be the year in which previous excesses in Australia’s housing market will catch up with the economy,” Capital Economics’ Marcel Thieliant and Ben Udy said earlier this month.

“We believe that the deepening housing downturn will become a far bigger drag on Australia’s GDP growth than most anticipate. Rather than hiking interest rates as most anticipate, we think the Reserve Bank of Australia will have to respond by cutting interest rates later this year.”

Market Economics and AMP Capital also predict the next rate move will be down.

Now, NAB’s rate hike adds extra pressure, argues the director of comparison site, Mozo Kirsty Lamont.

“With the out of cycle rate hikes likely to continue as banks battle increased funding costs, it looks likely that the RBA will look to lower the official cash rate,” Lamont said.

“If the RBA did lower interest rates then all eyes would be on the big banks to see if they’d pass on any cuts in full to help take the heat out household budgets.”

Will other banks hike rates?

NAB’s move makes it the last of the big four banks to hike rates with the other three moving in September and October last year. At the time, NAB said it would hold off increasing rates for as long as possible.

Noting this, Canstar’s group executive of financial services, Steve Mickenbecker said it’s unlikely NAB’s move will trigger a series of rate hikes from the other major banks.

“I don’t think this will set off the next round of rate hikes because the fact is, NAB is catching up with what the other banks did a few months back.”

But Lamont observed that the Bank of Queensland and Virgin Money have also hiked rates this year, with all three banks’ decisions serving to “turn the temperature up” on household finances.

Lamont said it’s another sign that Australian home owners are in for more out-of-cycle rate hikes.

“With the big four banks still commanding around 80 per cent of the domestic mortgage market, out of cycle rate hikes will significantly increase financial pressure on Australian households,” she said.

“The hikes also come amid a backdrop of stagnant wages and significant pressures on household finances.”

What does NAB’s rate hike look like in dollar figures?
Based on a $400,000 loan over 30 years with a 20 per cent deposit. Source: Mozo
Based on a $400,000 loan over 30 years with a 20 per cent deposit. Source: Mozo

Based on a $400,000 loan over 30 years with a 20 per cent deposit.

What can I do to offset the increase?

Mozo suggests homeowners compare rates and push their lender for a better deal, or seek a fixed-rate loan.

Alternatively, they could set up an offset account.

And if it comes down to it, homeowners can switch to other lenders with more competitive rates.

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