Macquarie Bank is the first major Australian lender to pass on the new cash rate rise with its variable mortgages set to jump by 0.5 per cent.
The hike will be introduced next Friday, August 12, following the Reserve Bank of Australia’s 0.5 per cent increase on Tuesday – bringing the cash rate to a six-year high of 1.85 per cent.
The RBA’s fourth consecutive increase pushed the cash rate up from a three-year high of 1.35 per cent after inflation soared to 6.1 per cent in the June quarter.
While Australia’s big four were quick to pass on the pain in May, June and July – the Commonwealth Bank, ANZ, NAB and Westpac – are yet to announce whether they will raise rates for mortgage holders.
Macquarie Bank will enforce the Reserve Bank of Australia’s new cash rate rise of 0.5 per cent from next Friday, August 12
A borrower from the Commonwealth Bank with an average $600,000 loan will need to find an extra $169 each month if the new rate is passed
What a 0.5 percentage point rate rise means
$500,000: Up $141 from $2,215 to $2,356
$600,000: Up $169 from $2,658 to $2,827
$700,000: Up $197 from $3,101 to $3,298
$800,000: Up $225 from $3,544 to $3,769
$900,000: Up $253 from $3,987 to $4,240
$1,000,000: Up $281 from $4,430 to $4,711
Increases based on Reserve Bank cash rate rising from 1.35 per cent to 1.85 per cent taking popular Commonwealth Bank variable rate from 3.39 per cent to 3.89 per cent
RBA governor Philip Lowe in a statement said the central bank ‘places a high priority’ on getting inflation back within the two to three per cent target.
‘The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,’ he said.
‘The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia’s invasion of Ukraine and the Covid containment measures in China.’
Inflation in the year to June surged by 6.1 per cent, the fastest pace since 2001.
The consumer price index was the steepest since 1990 when the one-off effect of the GST introduction was taken out.
Both the Reserve Bank and Treasury are now expecting inflation to hit a 32-year high of 7.75 per cent by the end of 2022 and remain above the RBA target until 2024.
‘The expected moderation in inflation reflects the ongoing resolution of global supply-side problems, the stabilisation of commodity prices and the impact of rising interest rates,’ Dr Lowe said.
The latest RBA rate increase means a homeowner paying off an average $600,000 mortgage will have to find an additional $169 for their monthly mortgage repayments, as they climbed to $2,827 from $2,658.
The big four banks were all expecting a 50 basis point increase in August and all of them are expecting another 50 basis point rise in September, that would take the cash rate to a seven-year high of 2.35 per cent.
The ANZ bank is expecting a 3.35 per cent cash rate by November, which would mean 50 basis point rate rises in September, October and on Melbourne Cup Day (pictured is a Sydney branch)
Treasurer Jim Chalmers told Parliament the latest rate rise would hit families the hardest amid tge growing cost of living crisis
But the ANZ bank is expecting a 10-year high 3.35 per cent cash rate by November, which would mean 50 basis point rate rises in September, October and on Melbourne Cup Day.
Should that prediction materialise, a borrower with a $600,000 mortgage would see their monthly repayments climb by another $708, compared with where they are now, before the banks adjust their variable mortgage rates to account for the RBA’s latest 50 basis point increase.
A 3.35 per cent cash rate would also mean this same borrower would be paying $1,060 more a month by November, compared with May when the cash rate was still at a record-low of 0.1 per cent.
Westpac is expecting a 3.35 per cent cash rate but by February next year, with chief economist Bill Evans predicting another big 50 basis point rate rise in September (pictured is a pedestrian walking past a Sydney branch)
This borrower would, from November, be paying $3,366 a month on their mortgage repayments, compared with just $2,306 at the beginning of May when the Commonwealth Bank had a popular variable rate of 2.29 per cent.
ANZ head of Australian economics David Plank said the RBA would be unlikely to raise rates by smaller 25 basis increments in 2022.
‘The cash rate is still some way below the lower bound of the RBA’s estimate of neutral, and the statement specifically states that “the board expects to take further steps in the process of normalising monetary conditions over the months ahead” even if “it is not on a pre-set path”,’ he said.
Westpac is expecting a 3.35 per cent cash rate but by February next year, with chief economist Bill Evans predicting another big 50 basis point rate rise in September.
‘The most important aspect of the Statement was whether there was any indication that the Board might ease back to a 25 basis point pace in September,’ he said.
‘But there does not appear to be any evidence to suggest such a policy and we confirm our view that there will be another lift of 50 basis points in September 6.’
RBA governor Philip Lowe hinted that more cash rate rises are on the way and blamed the Russian war in Ukraine for the RBA’s struggle to control inflation
What big banks are NOW expecting
WESTPAC: 3.35 per cent cash rate by February 2023
This would include 50 basis point increases in August and September and 25 basis point rises in October, November, December and February
ANZ: 3.35 per cent cash rate by November 2022
This would include 50 basis point increases in August, September, October and November
COMMONWEALTH BANK: 2.6 per cent cash rate by November
This would include 50 basis point rate rises in August and September and a 25 basis point rise in November
NAB: 2.85 per cent cash rate by November
This would include 50 basis point increases in August and September and 25 basis point rises in October and November
The Commonwealth Bank, Australia’s biggest home lender, is predicting a 2.6 per cent cash rate by November
The Commonwealth Bank, Australia’s biggest home lender, is predicting a 2.6 per cent cash rate by November.
Gareth Aird, the Commonwealth Bank’s head of Australia economics, argued the RBA would be reluctant to raise the cash rate significantly above its stated neutral level of 2.5 per cent.
‘Indeed we expect that once the cash rate gets to around that level the RBA will pause to assess the impact that their policy tightening has had on the economy,’ he said.
With the banks are having a different forecast for the cash rate Warwick McKibbin, an RBA board member from 2001 to 2011, said borrowers deserved to know about the dissenting opinion of Reserve Bank monetary policy decision makers
NAB, Australia’s biggest business lender, is expecting a 2.85 per cent cash rate peak in November.
With the banks having a different forecast for the cash rate Warwick McKibbin, an RBA board member from 2001 to 2011, said borrowers deserved to know about the dissenting opinion of Reserve Bank monetary policy decision makers.
Professor McKibbin, who is now the director of the Australian National University’s Centre for Applied Macroeconomic Analysis, said the RBA should emulate the High Court and publish the dissenting opinions of all board members, likening them to judges who decide constitutional matters.
‘That gives you more information that there are people out there who believe something else might happen and if they’re credible people, you think, “What if they’re right, then I’ve got two possible outcomes”,’ he told Daily Mail Australia.
‘That enables a much better decision making process out in the wider community.
‘The decision of when to start raising interest rates: I doubt it could have been a consensus to wait as long as they did but we don’t know because the minutes don’t say anything about who said what.’
The Australian Securities Exchange’s 30-day futures market is expecting the RBA cash rate to peak at 3.2 per cent in March next year.
What borrowers could be paying by November every month compared with May
$500,000: Up $883 from $1,922 to $2,805
$600,000: Up $1,060 from $2,306 to $3,366
$700,000: Up $1,236 from $2,691 to $3,927
$800,000: Up $1,413 from $3,075 to $4,488
$900,000: Up $1,590 from $3,459 to $5,049
$1,000,000: Up $1,767 from $3,843 to $5,610
Calculations based on the cash rate rising from a record-low of 0.1 per cent in May to 3.35 per cent by November, as predicted by ANZ. Monthly repayments based on a popular variable Commonwealth Bank rate increase from 2.29 per cent to a projected 5.39 per cent