All big four banks expected to announce rate changes after RBA hike

The big four banks are expected to announce rate changes on Wednesday, against the backdrop of the competition regulator preparing to probe deposit pricing across the sector.

Australia's four big banks are expected to pass on the latest rate hike in full to borrowers and all eyes are on deposit rates. Picture: NCA Newswire

Borrowers are bracing for the big banks to pass on the latest official rate hike in full, but those with ­deposits will need to scrutinise more closely whether banks pass on any increase to savings rates.

The RBA on Tuesday raised the cash rate for a 10th consecutive time, marking the fastest period of monetary policy action by the central bank since the 1990s.

The big four banks are expected to announce rate changes on Wednesday, against the backdrop of the competition regulator preparing to probe deposit pricing across the sector.

Home loan rates have moved in line with or above the RBA’s official hikes, while banks have only selectively passed on rate rises on saving products.

Comparison platform Canstar said the latest RBA hike had seen loan repayments soar by more than 50 per cent since April 2022. Canstar’s analysis said a borrower with a $500,000 loan, who had faced the full force of the 10 rate rises, would pay $1051 more per month than they did in April last year.

Canstar’s money commentator Effie Zahos said borrower ­financial pain would be compounded by “homeowners about to roll off fixed-rate loans who will need to play catch up to meet the higher repayments that will now come with variable rates”. About 800,000 borrowers on ultra-low fixed rate loans will see their term expire, reverting to markedly higher variable rates this year.

Ms Zahos urged borrowers to tough out the rising rate environment, given at least one bank expected rate cuts from late-2023.

“Commonwealth Bank expects the Reserve Bank will start cutting the cash rate in the last quarter of 2023, while both NAB and Westpac think we will start seeing the cash rate fall in early 2024,” she said. “ANZ, however, thinks we are unlikely to see rates go down until November 2024.”

RateCity said the 25 basis point RBA cash rate rise – when passed on to borrowers – would see fewer lenders pricing mortgages about 4 per cent.

Its analysis suggested after the March hike there would be less than 10 ongoing variable mortgage rates in the 4 per cent range.

RateCity research director Sally Tindall said the latest rate rise could spur some borrowers to “pick up the phone to the bank for help”. “This latest hike is going to pack a punch for many families, who could be forced to make some tough decisions,” she said.

Rising funding costs – banks fund loans via deposits and wholesale markets – are also starting to be passed on in out-of-cycle rate rises by several of the big four banks. Last week, CBA and NAB raised some of their variable home loan rates in an out-of-cycle move.

In a report on Tuesday, Morgan Stanley analyst Richard Wiles warned banks were facing a more difficult earnings environment after reaping the benefits of rising lending rates and low deposit pricing. Morgan Stanley expects bank margins to be flat in the March quarter, after an 8 basis points rise in the prior three months.

“Rising rates and a more fluid competitive environment are driving greater volatility in margins,” Mr Wiles wrote. “We forecast major bank margins to increase circa 17 basis points year-on-year in FY23 but to fall about 8 basis points in FY24.”

Morgan Stanley said the economic slowdown, coupled with higher rates, falling house prices and tougher mortgage serviceability hurdles would weigh on lending growth.

During the global financial ­crisis, the RBA slashed the cash rate in five straight moves.

Mortgage defaults and distressed sales have remained low in recent months, but CoreLogic research director Tim Lawless said it would be naive not to expect these figures to rise due to the lag effect of rate increases on household budgets.

“More households are likely to be facing balance sheets that have become thinly stretched,” he said. “However, a trend towards improved underwriting standards, including lower proportions of high debt-to-income ratio lending and high loan-to-valuation ratio lending since early-2022, should help to keep mortgage ­defaults relatively low.”

Additional reporting: Mackenzie Scott

Originally published as All big four banks expected to announce rate changes after RBA hike