Big four banks pass on interest rate rise in full

The big four banks have increased mortgage interest rates by 0.5 percentage points, passing on the Reserve Bank’s latest official rate rise to customers in full.

The Reserve Bank of Australia increased the official cash rate by 0.5 percentage points on Tuesday, taking it to 1.35 per cent.

CBA was once among Australia’s largest providers of financial advice.Credit: Paul Jeffers

The RBA has now lifted the cash rate by 1.25 percentage points in three months. Economists expect the cash rate to reach more than 2 per cent by the end of the year to tackle rising inflation.

On Wednesday morning, CBA was the first bank to announce changes to its interest rates, followed by ANZ, NAB and Westpac.

They will all increase standard variable home loan rates by 50 basis points. The four banks also announced they will increase the rate on a number of savings products and introduced new term deposit offers.

The deposit rate for several CBA savings products – GoalSaver and Youthsaver – will increase by 0.5 percentage points. CBA will also offer a new 15-month term deposit at 2.5 per cent. The changes will take place from July 15.

ANZ said the change would increase monthly repayments by $119 on an average home loan of $450,000 for an owner-occupier paying principal and interest. It will also offer a new rate for its 11-month term deposit of 2.5 per cent from July 11, and increase bonus interest rates on Progress Saver accounts.

NAB, which followed its rivals, was confident its customers could cope with the increase. “Overall, our customers are in good position with many ahead on their repayments,” NAB personal banking executive Rachel Slade said.

“There’s more pain on the way for variable home loan customers with another double hike tipped for next month. If this happens, it will be the sharpest rise to the cash rate since 1994, when the RBA hiked by 2.75 percentage points in the space of five months.”

RateCity research director Sally Tindall

Westpac’s head of consumer and business banking Chris de Bruin said it considered several factors in making the decision, including the cash rate rise, ongoing increases in the cost of funding, as well as the needs of both borrowers and depositors.

Macquarie Bank also followed suit, increasing variable home loan rates by 0.5 percentage points.

Treasurer Jim Chalmers said on Tuesday the country was strong enough to withstand a second consecutive 0.5 percentage point increase in official interest rates.

He said he had spoken to the heads of Australian banks about passing on the interest rates to savers who had faced record-low returns for several years. While about 34 per cent of households have a mortgage, more than three quarters have savings.

The RBA is expected to lift rates again in July.Credit: Peter Braig

RateCity research director Sally Tindall said owner-occupiers with a $500,000 mortgage over 25 years could expect repayments to rise by $137 a month.

Borrowers with a mortgage of $1 million will see an increase of $273 per month.

“There’s more pain on the way for variable home loan customers with another double hike tipped for next month. If this happens, it will be the sharpest rise to the cash rate since 1994, when the RBA hiked by 2.75 percentage points in the space of five months,” Tindall said.

Analysts and economists on Wednesday predicted the Reserve Bank board would raise the official cash rate by 0.5 per cent again in August, before more modest increases of 0.25 per cent in the months following.

Jarden chief economist Carlos Cacho said in a note there was a risk the board could raise the interest rate next month by 0.75 percentage points if the June quarter inflation data was higher than expected, but its prediction remained a 0.5 percentage point rise.

“After the volatility in recent months and being caught off-guard by the higher inflation in Australia (despite well understood global factors), the RBA seems to be getting comfortable in this hiking cycle,” he said.

UBS economist George Tharenou expects the RBA to start cutting rates by 0.5 per cent in the second half of next year.

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