Now that another major bank has raised its fixed mortgage rates, it is clear that official interest rates are likely to rise at the fastest rate in more than three decades.
On Friday, the National Australia Bank increased its fixed rates and followed the Commonwealth Bank’s lead.
Economists at Australia’s biggest banks believe that the Reserve Bank of Australia will raise the cash rate by 0.5 percentage points at its meeting on July 5.
This would increase the cash rate from its present level of 0.85 percent to a three-year high of 1.35 percent.
A rate increase in July would already be the fastest pace of increases in a short period since late 1994 after the hikes in May and June.
In order to combat the 5.1% inflation rate, which is the worst in two decades and the 3.9% unemployment rate, the RBA is forecast to raise interest rates several more times in 2022.
The NAB one-year fixed rate will rise from 3.59 percent to 4.69 percent by 1.1 percentage points.
The two-year fixed mortgage rate from NAB is increasing by one percentage point to 5.59% from 4.59%.
In preparation for another significant Reserve Bank rate increase in July, The Commonwealth Bank increased its fixed mortgage rates on Thursday by a whopping 1.4 percentage points for both owner-occupiers and investors seeking maturities of one to five years.
The lowest one-year fixed rate offered by CBA is increasing from 3.59 percent to 4.99 percent.
The largest home lender in Australia, the Commonwealth Bank, currently boasts the highest one-year fixed mortgage rate.
Westpac has the lowest rate of 4.09 percent for a one-year fixed rate, while NAB and ANZ charge 4.69 percent.
The five-year rate at CBA is rising from 5.29 percent to 6.69 percent.
A RateCity analysis showed more than 70 banks had hiked at least one fixed rate during the past month.
RateCity research director Sally Tindall said NAB’s rise showed the big banks were factoring in financial market expectations of the RBA cash rate climbing above 2.5 per cent.
In addition to taking into account market forecasts that the cash rate will rise above the RBA’s proposed neutral cash rate of 2.5%, she noted that banks were reacting to the rising cost of fixed-rate funding.
The RBA cash rate is predicted by the futures market to reach 3.1% by December.
This is a lot higher than the CBA’s prediction of a November cash rate of 2.1%, following increases of 0.25 percentage points in August, September, and November.
By February 2023, Westpac anticipates the RBA cash rate to be 2.35 percent, up from 0.25 percent rises in August, November, and December.
Since early 2015, that would represent the highest Reserve Bank overnight cash rate.
Bill Evans, chief economist at Westpac, predicted that the RBA would likely increase the cash rate by 0.5 percentage points at its meeting in July.
The RBA Board will increase the cash rate by 50 basis points the next week, we confirm our call, he added.
The choice to raise rates by 50 basis points in June “indicates that while rates are stimulatory with rising inflation pressures and a 48-year low in the unemployment rate, the better policy is to move decisively and signal clearly that the board is fully committed to returning inflation to its target range in due course.”
According to Mr. Evans, an RBA cash rate below 1.5% would be considered “stimulatory” and would need to increase to 2% to be above the neutral range.
As of this week, no Australian lenders are providing mortgage rates below 2%.
Before the Reserve Bank raised rates in May, Canstar offered 68 items with that low rate, down from 193 a year earlier.
According to Canstar banking expert Steve Mickenbecker, Australians are unlikely to ever again experience mortgage rates below 2%.
He said, “The Reserve Bank’s cash rate increases in May and June may mean that we never again experience an age of housing loan interest rates below two percent.
While fixed rates rose, the Commonwealth Bank lowered its Extra Home Loan variable rates by 0.15 percentage points, lowering the lowest discount rate from 2.94 to 2.79 percent.
The more popular CBA variable rate is also falling by 0.15 percentage points, from 3.04 percent to 2.89 percent, as a result of less onerous credit card limitations.
The Commonwealth Bank forecasts a 0.5 percentage point hike at the RBA meeting on July 5. This would bring the cash rate to 1.35 percent, the highest level since June 2019.
The increase of 0.5 percentage points in June was the most since February 2000.
The 0.25 percentage point hike in May marked the first increase since November 2010.
For the first time in nearly 12 years, the cash rate would increase for a third consecutive month in July if there was another rate increase.
If interest rates rise by 0.5 percentage points next month, home borrowers will have already experienced 1.25 percentage point increases from the RBA in the past three months.
The rate of growth in such a little period hasn’t been this rapid since late 1994, in the early days of the internet.