NAB last of Australia’s major banks to respond to RBA’s interest rate rise

All four of Australia’s major banks have now responded to the RBA’s interest rate rise, but their dates for passing on the 0.25 per cent hike vary. See when you’ll get hit in the hip pocket.

All four of Australia’s major banks have now responded to the Reserve Bank of Australia’s interest rate rise on Tuesday.

On Wednesday morning, NAB officially announced its rates would be raised by the full 0.25 per cent, following a change in policy from the other three major banks in Australia.

As of May 13, NAB’s standard variable home loan will increase to 4.77 per cent and the reward saver bonus interest rate will increase by 0.25 per cent.

Interest rates rose for the first time since St George-Illawarra were NRL premiers as the Reserve Bank of Australia attempts to slay the inflation dragon.

The RBA lifted its benchmark cash rate by 0.25 percentage points on Tuesday to 0.35 per cent, adding $80 to monthly repayments on a $600,000 mortgage and $130 to instalments on a million-dollar loan.

CommBank was the first major lender to respond, increasing charges by 25 basis points from May 20; but it was silent on deposit rates.

The ANZ will be even quicker to bring in the hike, changing its rates from May 13, and Westpac will also pass on the RBA’s increase in full to borrowers, from May 17.

The Commonwealth Bank of Australia is the first bank to pass on the official interest rate increase. Picture: Asanka Ratnayake/Getty Images

The RBA signalled more hikes were on the way soon and that the cash rate was likely to reach 2.5 per cent to counter the biggest surge in consumer prices in more than two decades.

Speaking to reporters and economists, Governor Philip Lowe repeatedly refused to specify a time frame, having given explicit guidance in the past only for it to be way off the mark.

However, Dr Lowe did reveal a big change to the RBA’s inflation forecast for calendar 2022, upping it from 3.25 per cent to 6 per cent. He cited global supply shocks as the main causes, in particular lockdowns in China and the war in Ukraine.

Dr Lowe said inflation could be brought down to around 3 per cent by mid-2024 — with further interest rate rises. Among the RBA’s main goals is keeping inflation between 2 and 3 per cent over the medium term. Raising the cash rate is one way it can reduce inflation, because increasing the cost of borrowing reduces demand for goods and services.

Most economists expect several more 25 basis point increases this year, including next month.

Top economist Shane Oliver of AMP anticipates another four hikes by Christmas, including 0.4 per cent in June.

“Once we are out of the way of the election I think the RBA can proceed more aggressively,” Dr Oliver said.

That implies a standard variable rate of about 5.4 per cent, which would add nearly $800 to monthly repayments on a $600,000 loan and more than $2300 to instalments on $1m of borrowing.

The RBA’s Dr Lowe was questioned on whether it was playing catch up, given inflation is already above 5 per cent. He said he didn’t “see it in those terms. I do see that we need to normalise interest rates” to put a brake on inflation.

RBA Governor Philip Lowe issued a statement raising the cash rate by 25 basis points. Picture: Getty Images

He described “normal” as a cash rate of 2.5 per cent.

AMP’s Dr Oliver said: “I reckon in a year’s time we will be at a cash rate of 2 per cent, so it’s conceivable we will be at 2.5 per cent by the end of next year.”

That implies a standard variable rate after discounts of about 5.4 per cent, which would add nearly $800 to monthly repayments on a $600,000 loan and more than $2300 to instalments on $1m of borrowing.

Dr Lowe was asked whether he had a message for recent home buyers who took his guidance, in 2020, that the cash rate would not rise from 0.1 per cent until 2024.

He said that was an “embarrassing” forecast.

But, he added, it was important to remember that at the time there was an expectation it would take “many years” to develop Covid-19 vaccines, that tens of thousands of Australians would die and that the jobless rate would hit 15 per cent.

“Thankfully, we were wrong,” Dr Lowe said.

The RBA is now forecasting unemployment will fall to 3.5 per cent by the end of the year, the lowest in about half a century, and that wage growth will pick up.

He said in retrospect, he would offer the same guidance again.

Dr Lowe said it was “good news that rates are rising out of the emergency levels.

“I know many people don’t like rising interest rates but it’s a reflection of the underlying strength of the economy.”

Dr Lowe said about 40 per cent of businesses recently surveyed by the RBA indicated they were planning to boost salaries by 3 per cent or more.

The last time there was a cash rate increase was 2010 and there hasn’t been a hike during an election campaign since 2007.

Prime Minister Scott Morrison said he had “sympathy” for homeowners, acknowledging many would find rising repayments “hard”.

Mr Morrison argued the Coalition’s economic “shield” — including temporary cost-of-living measures like $250 for pensioners and the fuel excise cut — would pull Australians through the rate rises.

The PM said “throughout the course of the pandemic we have seen (Australians) double their buffers on their mortgages and move from variable rates to fixed rates … we’ve also seen them strengthen their own balance sheets.”

Labor leader Anthony Albanese said “when things are going well in the economy Scott Morrison takes all the credit, but when things get difficult he takes none of the responsibility.

“He can’t have it both ways.”

The RBA’s Dr Lowe said the election had “no influence” on the RBA. The central bank had not received even one phone call from a politician.

“We have operational independence and it’s a testimony to the political culture of Australia that (our) independence is respected,” he said.

Jehad Skaf and Sylvana Barakat worry what rate rises will mean for their family. Picture: Justin Lloyd

But he would not comment when asked whether additional government spending, much of it to address cost of living pressures, had added to the case for a May rate increase.

Sylvana Barakat and her husband bought their Greenacre home several years ago — before the latest boom — but are still worried rising interest rates will make it harder to pay off the mortgage.

And they fear their kids won’t have same opportunity to buy.

“It concerns us,” Ms Barakat said. “It’s scary to think of the next generation and how they’re going to cope. My children are the future. My son has no hope of buying a home at this rate.”

A CoreLogic home prices report released on Monday showed Sydney values fell by 0.2 per cent in April, with more expensive properties leading the decline. No other capital city recorded a fall.

Originally published as NAB last of Australia’s major banks to respond to RBA’s interest rate rise