Australia’s major banks follow RBA’s ‘super-sized’ June interest rate rise

Australia’s big banks have now followed the RBA’s “super-sized” interest rate rise, with countless mortgage holders set to soon feel the pinch.

All of Australia’s big four banks have increased their mortgage rates in line with Tuesday’s RBA interest rate rise.

ANZ and NAB announced the move on Wednesday, bringing them in line with Commonwealth Bank. Macquarie Bank, Westpac and Bank of Queensland had already moved in line with the RBA.

Wednesday’s news came after Westpac revealed it would pass on RBA’s 0.5 percentage point increase in full to new and existing borrowers on variable rates.

Westpac is also introducing a term deposit rate of 2.25 per cent per annum for 12 months to support customers with their savings from 9 June. Other deposit interest rates remain under review at this time.

“We know a change in interest rates affects every budget differently. Our customers have managed their finances carefully during the pandemic, with many putting more funds aside in their savings and offset accounts. This means the majority of our customers are ahead on mortgage repayments and have a buffer available to help them manage an interest rate increase,” said Westpac Consumer and Business Banking Chief Executive, Chris de Bruin.

“To help customers through the changing interest rate environment, we offer our customers a range of tools to help them manage their home loan repayments. Customers can use our online mortgage repayment calculator to see how adjusting their loan amount, term or interest rate will impact them or help pay off their loan sooner.

“For customers who need some extra help or who are in financial difficulty, we have our specialist teams standing by who will work with them to tailor a financial solution to meet their needs. We encourage customers doing it tough to call us as soon as possible.”

Other major banks yet to respond

Westpac is the first bank to respond to the rate hike today, the other big three have not responded.

Last month, the Reserve Bank raised the cash rate by 25 basis points, from the historic low of 0.1 per cent to 0.35 per cent.

This month, experts were predicting a second rise of 25 or 40 basis points, but the RBA once again caught the market off guard by lifting the cash rate by 50 basis points, bringing the official interest rate to 0.85 per cent.

Meanwhile, some insiders expect the cash rate to climb even higher to 2.5 per cent by the end of the year in a desperate bid to bring inflation back under control, with the RBA’s own forecasting predicting the cash rate will increase to around 1.75 per cent by the end of 2022.

Now, all eyes are on the nation’s biggest lenders, with customers anxiously waiting to hear if they will pass on today’s rate rise in full – a prospect AMP’s chief economist Shane Oliver believes is likely.

“Banks are likely to pass the RBA’s rate hike on in full to their variable rate customers and deposit rates will rise further,” he said in a statement following the RBA announcement.

“Fixed mortgage rates have already moved up in line with rising bond yields in anticipation of higher cash rates – more than doubling from record lows around 2 per cent early last year.

“While the rate hike adds to the cost of living the RBA has little choice but to ‘normalise’ interest rates.”

Why is the rate rise so high?

Ahead of today’s bombshell, the big four banks were divided over how the RBA would respond to skyrocketing inflation, with CBA and NAB predicting a 25 basis point hike while ANZ and Westpac forecasted a 40 basis point increase.

But all were proved wrong, with scores of Australia’s most prominent finance experts also failing to predict today’s “super-sized” rate rise.

BetaShares chief economist David Bassanese told the ABC that the RBA was sounding the alarm.

“The Reserve Bank of Australia has decided to inflict shock and awe on the economy today, no doubt with a view to eliminating any lingering complacency with regard to the inflation outlook,” he said.

“Indeed, today’s decision is a bolt from the blue and stands in marked contrast to the RBA’s recent soothing words with regard to the outlook.

“It is now acting out of clear alarm and is not frightened to show its alarm.”

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The big four banks were all caught off guard by the RBA.

What it means for you

RateCity.com.au research director Sally Tindall said the RBA wanted to nip skyrocketing inflation in the bud.

“Central banks across the world are struggling to get on top of inflation, and the Reserve Bank of Australia does not want to be one of them,” she said.

“The RBA is likely to take a rapid-fire approach to rate hikes over the next six to 12 months.

“If the cash rate gets to 1.75 per cent by Christmas, the average home loan customer with $500,000 owing could see their monthly repayments rise by $442 in total. By Christmas next year they could be $652 more a month in total.”

The RBA wants to nip soaring inflation in the bud – but mortgage holders will feel the pinch. Picture: iStock

Ms Tindall said now was the time to act.

“Don’t just assume you can take these hikes in your stride. Work out what your repayments will look like by Christmas next year and make sure that number fits into your budget,” she said.

“A lot of people think just because rates are on the rise, it’s not a good time to renegotiate their home loan. But in many cases, that’s just not true.

“Banks still need to keep new business rolling through the door, and they’re typically doing it by offering sharper discounts to refinancers willing to switch lenders.”

Originally published as Australia’s major banks follow RBA’s ‘super-sized’ June interest rate rise