CBA raises interest rates as market bets on early spot rate hike

The CBA raised interest rates for the third time in six weeks, as the market bets heavily on an anticipated hike in spot rates. Photo: Getty Images
  • The ABC has raised interest rates on fixed rate loans for the third time in six weeks as the market puts pressure on borrowing costs.
  • RateCity’s research director, Sally Tindall, said that while several factors are at play, the expiration of the RBA’s $ 188 billion low-cost commercial loan program in June is likely one of the biggest factors, leaving banks with no choice but to raise rates to increase profits.
  • Commercial borrowing costs are only expected to rise as bond investors are betting heavily on the idea that the RBA will raise the cash rate as early as May of next year.
  • Visit the Business Insider Australia homepage for more stories.

The Commonwealth Bank of Australia has raised interest rates for the third time in six weeks in an effort to control borrowing costs, as the market is betting big on the RBA which will hike the spot rate before 2024.

The CBA, which has the largest share of the Australian home loan market, increased its fixed interest rates for homeowners to 0.30% on Friday, as well as fixed interest rates for investors, which were raised up to 0.60%.

The bank’s two-year loans rose 0.25% to 2.59%, while its three-year rate rose 0.3% to 2.99%. The CBA’s four-year fixed rate, meanwhile, rose 0.20% to 3.09%, and its five-year rate climbed 0.30% to 3.39%.

This week’s rate hike makes the CBA the most expensive fixed-rate mortgage lender among the Big Four, adding about $ 80 per month in repayment fees to three- and five-year fixed-rate home loans.

RateCity’s research director, Sally Tindall, said that while there are several factors at play, the expiration of the RBA’s $ 188 billion low-cost commercial loan program in June is likely the one of the main factors, leaving banks with no choice but to increase rates in order to fill their profit margins.

“It’s raining rate hikes and the storm is far from over,” Tindall said. “The tide of fixed rate hikes is expected to continue as the cost of fixed term financing continues to rise.”

“The number of fixed rates below 2% is declining rapidly,” she said. Six months ago there were 161 fixed rates below 2%. Today there are only 87 and we expect that number to continue to drop. “

Right now, NAB is the only one of the Big Four to offer a fixed rate home loan below 2%, and even so, it is a one year fixed rate offer. At the same level, CBA offers 2.49%, while Westpac offers 2.24% and ANZ offers 2.29%.

“While there is still a decent range of short term fixed rates below 2%, there are now only three 3 year fixed rates under this brand, and no 4 or 5 year rates starting with one” , Tindall mentioned.

“Surprisingly, the Greater Bank is still offering our lowest fixed rate of our records at 1.59% for up to two years, however, this record rate is unlikely to be seen next year,” she said. declared.

And the costs of commercial borrowing are only expected to rise, as aggressive bond investors aggressively bet on the idea that the Reserve Bank of Australia could raise the cash rate as early as May of next year – well ahead of the 2024 guidance. from RBA Governor Philip Lowe.

Even still, the market believes there is a domestic chance that Lowe will follow in the footsteps of the Reserve Bank of New Zealand and South Korea’s central bank, following the rate hike on Wednesday and the market tightening. Korea Thursday.

Market analysts have warned, however, that there are key differences in the approaches of the RBNZ, South Korea and Australia.

Crucially, they say, is that Australian counterparts are operating within the confines of more “traditional” central bank tightening methods, which will often see a central bank tighten as inflation fluctuates.

“There are clear arguments for monetary policy in Australia to deviate from its close counterparts and lag behind possible global normalization,” Bloomberg Economics analyst James McIntyre said earlier this week.

“Bargaining standards and government policies reinforce a gloomy wage outlook, which will ease domestic inflationary pressures,” he said.

“The Australian labor market will need to warm for longer to achieve the wage growth results needed to support inflation within the RBA’s 2-3% target range. “

The story in Australia, as Lowe ad nauseum has reiterated over the past 12 months, is much more conservative than that of its counterparts.

Some economists say that, if the governor’s language is anything, it is likely that he will have to see inflation set in – “lastingly” – in a full quarter before raising rates. As such, a lift before August of next year is not considered likely.

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