On Thursday, the country’s largest lender, Commonwealth Bank of Australia (CBA.AX), joined the other three big banks in raising its standard variable home loan rate by 25 basis points after the central bank hiked its interest rate earlier this week. The National Australia Bank (NAB), ANZ Group Holdings (ANZ.AX), and Westpac Banking Corp (WBC.AX), the other three of Australia’s “big four,” had already hiked their home loan rates on Wednesday by 0.25%.
On Tuesday, the Reserve Bank of Australia (RBA) lifted its cash rate for the seventh time this year, sending shockwaves through the country’s mortgage and savings markets. Its surprise decision to raise rates follows a three-month pause as the central bank struggles to rein in rising inflation and lift the economy.
RBA Governor Philip Lowe said the decision to increase rates was needed to ensure sustainable growth and help bring inflation back into its target range of 2 to 3 percent. He warned that further interest rate rises were possible but would depend on how the economy and inflation develop.
The big banks quickly passed on the RBA’s 0.25 percent interest rate hike to their mortgage and savings customers, with NAB and ANZ announcing they would also lift rates for their deposit-based products. CBA and Macquarie Bank then announced they would also do so.
In the banking sector, the stability returned to mortgage and business lending volumes in Q2 has allowed for a margin recovery, allowing the rate hikes to be passed on without significant impact. This has helped offset a fall in profit from the COVID-19 pandemic and the ongoing effects of higher energy prices on household budgets.
With the bank profits returning to pre-pandemic levels, banks have more breathing space before further boosting their interest revenue by raising rates again. However, with a fragile global economy and continuing geopolitical tensions, a further increase in interest rates could have severe consequences for the economy, potentially leading to higher unemployment, weaker consumer spending, and an even slower economic recovery.
While the impact of interest rate changes will vary across households, for some people, the latest rate hike will likely add up to an additional $77 a month to their monthly repayments on a $500,000 mortgage, according to comparison website RateCity. That’s $983 extra added to monthly repayments since the first rate rise in May 2022.
ANZ Group executive for Australia retail Maile Carnegie said the bank understood that rate increases affect each customer differently, and it was ready to support those who face difficulty meeting their increased mortgage repayments. She encouraged anyone to contact the bank’s customer service teams. Non-major banks ING Australia and AMP Bank announced they would pass on the entire RBA rate hike to their variable mortgage customers, effective November 10. The increases will be passed on to existing home loan customers, with new customers receiving the higher rates starting November 17. ANZ’s increase will apply to some term deposits, effective November 21.
