RBA considered 40-bp cash rate raise
The Reserve Bank has revealed that it weighed up three different options for the size of the first cash rate rise in alm...
At the end of its monthly meeting yesterday, Tuesday, 3 May, the Reserve Bank of Australia (RBA) announced its first increase to the cash rate in 18 months.
For the first time since it was lowered to 0.1 per cent in November 2020, the RBA has increased the cash rate, announcing a 25-basis-point increase from 0.1 to 0.35 of a percentage point.
Here is how Australia’s big four banks responded to the rate hike.
The first of the big four to announce its intention to pass the RBA’s rate hike on to its customers, effective from Friday, 20 May 2022, CommBank’s variable mortgage rates will see an increase of 0.25 per cent.
The bank’s standard variable rate will rise to 4.80 per cent, while its lowest variable rate will hit 2.44 per cent. For CommBank customers who are owner-occupiers paying principal and interest on a $500,000 loan over 25 years, this means that their repayments could increase by as much as $72.
Elsewhere, in a move that RateCity research director Sally Tindall calls “worrying”, the bank is still reviewing whether it will pass on the rate increase to its millions of savings customers.
“What we don’t know is what CBA plans to do for its savers and that’s a worrying sign. It could signal the bank may not pass on this hike in full to its millions of savings customers,” Ms Tindall said.
“For the last decade, savers have watched their interest rates crumble away to nothing. CBA should do the right thing and pass this hike on to these customers.”
The second of the big four to act swiftly and announce it would pass the rate hikes on to variable mortgage rate customers, ANZ’s changes will come into effect one week earlier than CBA, on Friday, 13 May 2022.
The rate rises will see the bank’s index rate rise to 4.64 per cent, its discounted variable to 3.24 per cent, and its lowest variable to 2.44 per cent. Similar to the CBA, ANZ has not announced whether the rate rises will be passed on to its savings customers.
According to data from RateCity.com.au, the rate rise will see existing ANZ customers with a 25-year $500,000 loan see their monthly repayments increase by as much as $71.
Westpac also announced it would be passing on the RBA’s rate hike to variable customers and, unlike CBA and ANZ, to select savings accounts, with the changes to be implemented from Tuesday, 17 May 2022.
The rises will result in the bank’s standard variable increasing to 4.73 per cent, while the lowest variable rate goes up to 2.34 per cent. According to calculations from RateCity, this could mean that for existing customers who are owner-occupiers paying principal and interest on a $500,000 loan over 25 years, repayments could rise by $71, which is consistent with the increases seen across the rest of the big four.
Unlike CBA and ANZ, Westpac acted swiftly in announcing it would be passing on the full hike to two of the bank’s most popular deposit accounts. Both the bank’s “Life” account, which is open to all adults, and its retiree account for customers “55+ and Retired” will be subject to the rate increase.
The max new rate for the bank’s “Life” account will be 0.50 per cent once rate rises become applicable, with the max rate for the “retiree” account increasing to 0.35 per cent.
Ms Tindall said the move to increase rates to some savings accounts is positive, but criticised the bank’s decision to not implement the hikes across all savings accounts.
“It’s positive to see Westpac hike at least some deposit rates in full, but it would have been good to see it applied across the board.
“Westpac, like other banks, is bursting at the seams with cash,” she continued. “This is making it difficult for the bank to apply this hike to all savings accounts.”
She added that “Westpac might have doubled the maximum rate on its Life account, however, at 0.50 per cent, it’s still 0.85 per cent behind the market leaders in this space, who are yet to announce if they’re hiking.”
The big four that will action the rate rises the earliest, from Thursday, 12 May 2022, NAB joins Westpac in not only administering the RBA’s rate rise for variable mortgage holders but also for one of its savings accounts.
The implementation of the cash rate increase to NAB mortgage holders will see the bank’s standard variable rate rise to 4.77 per cent, with repayments on a $500,000 loan increasing by $72. Whereas the lowest variable rate the bank can offer will sit at 2.44 per cent once rate rises kick in, with monthly repayments on the same loan amount rising to $62.
Additionally, NAB has announced that it will implement the rate rise for the 1.3 million customers with a reward saver account, which increases the maximum rate available for these accounts to 0.50 per cent.
Ms Tindall has warned Australians with a home loan that they should anticipate and prepare for the coming months.
“As expected, the big four banks have moved in unison and passed on the RBA hike in full to their millions of variable home loan customers,” she said.
“Australians with a home loan should now brace for more pain, as this is only the beginning of a series of hikes ahead.
With the latest APRA statistics for March showing Australian households have a total of $1.26 trillion in the bank – an increase of over $272 billion since COVID, Ms Tindall implored Australian savers to investigate their bank’s intentions regarding the cash rate increases, especially considering a better deal could be found elsewhere.
“CBA and ANZ now have the chance to step up to the plate and pass on a rate hike to all of their savings customers, who’ve been on pitiful rates for far too long.
“Serious savers should find out what their bank intends to do. If your savings rate isn’t going up, shop around and see if you can get a better deal elsewhere,” she said.