It is now evident that official interest rates are about to increase at the quickest rate in over three decades as another major bank has increased its fixed mortgage rates.
The National Australia Bank raised its fixed rates on Friday, joining the Commonwealth Bank in doing so.
The Reserve Bank of Australia is generally anticipated to increase the cash rate by 0.5 percentage points at its meeting on July 5 by economists at Australia’s largest banks.
From its current level of 0.85 percent, this would raise the cash rate to a three-year high of 1.35 percent.
After the hikes in May and June, a rate increase in July would already be the greatest pace of increases in a brief period since late 1994.
Several more RBA rate rises are expected in 2022 to tackle 5.1 per cent inflation – the worst in two decades with unemployment at a 48-year low of 3.9 per cent.
NAB’s one-year fixed rate is increasing by 1.1 percentage points to 4.69 per cent, from 3.59 per cent.
The two-year fixed mortgage rate from NAB is increasing by one percentage point to 5.59% from 4.59%.
In preparation for another significant Reserve Bank rate increase in July, The Commonwealth Bank increased its fixed mortgage rates on Thursday by a whopping 1.4 percentage points for both owner-occupiers and investors seeking maturities of one to five years.
The lowest one-year fixed rate offered by CBA is increasing from 3.59 percent to 4.99 percent.
The largest home lender in Australia, the Commonwealth Bank, currently boasts the highest one-year fixed mortgage rate.
Westpac has the lowest rate of 4.09 percent for a one-year fixed rate, while NAB and ANZ charge 4.69 percent.
The five-year rate at CBA is rising from 5.29 percent to 6.69 percent.
A RateCity analysis showed more than 70 banks had hiked at least one fixed rate during the past month.
RateCity research director Sally Tindall said NAB’s rise showed the big banks were factoring in financial market expectations of the RBA cash rate climbing above 2.5 per cent.
‘The banks are responding to the rising cost of fixed-rate funding, but they’re also factoring in market expectations the cash rate will go beyond the RBA’s suggested neutral cash rate of 2.5 per cent,’ she said.
The futures market is expecting the RBA cash rate to hit 3.1 per cent by December.
This is significantly higher than CBA’s forecast of a 2.1 per cent cash rate by November, following 0.25 percentage point increase in August, September and November.
Westpac is expecting a 2.35 per cent RBA cash rate by February 2023, following 0.25 percentage point increases in August, November and December.
That would be the highest Reserve Bank overnight cash rate since early 2015.
Westpac chief economist Bill Evans said the RBA was likely to raise the cash rate by 0.5 percentage points at its July meeting.
‘We confirm our call that the RBA Board will raise the cash rate by 50 basis points next week,’ he said.
‘The decision in June to move by 50 points indicates that while rates are stimulatory with rising inflation pressures and a 48-year low in the unemployment rate the better policy is to move decisively and signalling clearly that the board is fully committed to returning inflation to its target range in due course.’
Mr Evans said an RBA cash rate of less than 1.5 per cent would be regarded as ‘stimulatory’ and would need to rise above 2 per cent be above the neutral range.
As of this week, no Australian lenders are providing mortgage rates below 2%.
Canstar advertised 68 items with that low rate before the Reserve Bank hiked rates in May, down from 193 a year earlier.
Australians are unlikely to ever again experience mortgage rates below two percent, according to Canstar banking expert Steve Mickenbecker.
He stated, “We may never again experience an era of house loan interest rates below two percent due to the Reserve Bank’s cash rate rises in May and June.
The Commonwealth Bank reduced its Extra Home Loan variable rates by 0.15 percentage points, bringing the lowest discount rate down from 2.94 to 2.79 percent, while fixed rates increased.
With fewer onerous credit card limits, the more popular CBA variable rate is also declining by 0.15 percentage points, from 3.04 percent to 2.89 percent.
At the RBA meeting on July 5, the Commonwealth Bank anticipates a 0.5 percentage point increase, which would raise the cash rate to 1.35 percent, the highest level since June 2019.
The 0.5 percentage point gain in June was the first increase of that size since February 2000.
The May rise of 0.25 percentage points was the first increase since November 2010.
Another rate rise in July would see the cash rate rise for three months in a row for the first time in almost 12 years.
A half a percentage point rise next month would also mean home borrowers would have copped 1.25 percentage points worth of RBA interest rate rises in just three months.
This would mark the steepest pace of increases in such a short time since late 1994, during the early years of the internet.