The big banks have begun jacking up fixed interest home loan rates even though the Reserve Bank of Australia has not increased official rates in a decade and on Friday signalled it was unlikely to do so until 2024.
Even with official rates frozen at record lows, banks say wholesale funding costs are increasing, in part because of the RBA’s decision earlier this year to stop lending them money at concessional rates.
Interest rates could start to creep up in 2023, a year earlier than previously expected, the RBA said.
But an increase in the cash rate in 2024 remains the RBA’s central assumption, it said in its most recent statement of monetary policy.
It said it may be forced to raise the official rate a year earlier, but only if inflation and wages growth exceed its current expectations.
The RBA said that its “central scenario” remained that wages will be growing by more than 3% a year by 2023, ending a pattern of stagnation that has seen growth stuck below that level since March 2013.
It predicted underlying inflation would be about 2.25% next year, increasing to 2.5% by 2023.
“Similar to wages growth, this would represent a meaningful pickup in underlying inflation relative to the experience of recent years,” the RBA said.
However, it said there were “other plausible scenarios” where wages growth and inflation were higher.
“If this were to eventuate, an increase in the cash rate in 2023 could be warranted,” it said.
“However, in the board’s view, the latest data and forecasts do not warrant an increase in the cash rate in 2022.”
It said that the economic outlook could also be grimmer than expected if Australia is hit by a new Covid-19 variant, or vaccines wearing off.
Banks have not waited for an increase in the official rate, which the RBA board left unchanged at a record low of 0.1% when it met on Melbourne Cup Day.
NAB was the first bank to charge more for home loans, raising fixed rates by up to 0.2 percentage points last Wednesday.
Westpac followed on Thursday this week and the Commonwealth Bank hiked its fixed rates on Friday morning, ahead of the RBA’s statement.
Bankers say that money has become more expensive even though the RBA has not raised the official cash rate in a decade and has kept it at 0.1% since November last year.
This is partly because in July the RBA shut down its Term Funding Facility, which provided $188bn in cheap money to the banks during the Covid-19 pandemic.
Wholesale rates are also increasing because traders expect the RBA to raise the cash rate in the future, with the ASX’s cash rate tracker pointing to a rate above 1.2% by April 2023.
CBA raised its fixed rates by between 0.1 percentage points, for a five-year fixed term, and 0.5 percentage points, for a four-year one.
“These changes reflect the steep increase in funding costs over the past few weeks as well as upgraded economic forecasts,” a CBA spokesperson said.
On Friday, Westpac increased its fixed rates by between 0.1 percentage points, for four- and five-year fixed periods, and by 0.21 percentage points for loans with a three-year fixed period.
“In making these decisions, we consider multiple factors including the need to manage pricing changes in a sustainable way,” a Westpac spokesperson said.
NAB increased its fixed rates by 0.1 percentage points for all terms between one and four years and increased five-year rates by 0.2 percentage points.
At the same time, it lowered its standard variable rate by 0.4 percentage points, to 2.29%.
