Westpac has taken the lead as the first major bank to pass on the full value of the surprise rise in Reserve Bank interest rates to mortgage borrowers.
Key points:
- The RBA has raised the cash rate from 0.35% to 0.85%.
- Banks are expected to pass on the full rate hike to borrowers, but not to savers
- Some economists have forecast another half-percentage point increase in July
Westpac said it would increase variable interest rates on home loans by half a percentage point from June 21.
The bank also said it would introduce a 2.25 percent term deposit rate for 12 months for savers starting June 9, while other interest rates on deposits remained under review.
When banks pass the rate increase in full, the rate increase will add $ 133 a month on a $ 500,000 loan for 25 years and $ 265 a month on a $ 1 loan million dollars.
“We know that a change in interest rates affects each budget differently,” said Chris de Bruin, chief executive of Westpac Consumer and Business Banking.
“Our customers have carefully managed their finances during the pandemic, and many have put more funds aside in their savings and clearing accounts.
“This means that most of our clients are advanced in repaying their mortgages and have a buffer available to help them manage rising interest rates.”
The RBA has raised interest rates for the second time in two months, with a half-point increase greater than expected.
The rate hike for June is the biggest rise since 2000 and brings the spot rate target to 0.85 percent in an attempt to curb rising inflation.
The cost of living rose 5.1% last year, compounded by global supply chain disruptions and the war in Ukraine.
Reserve Bank Governor Philip Lowe said inflation was expected to rise further before falling back to the 2-3% target range next year, indicating further interest rate hikes .
“Higher electricity and gas prices and recent increases in petrol prices mean that inflation is likely to be higher than expected a month ago in the short term,” he said in a statement. after the board meeting this Tuesday.
The rise in the jumbo market scared the stock market, with the ASX 200 falling 1.5 percent to 7,096.
Another disproportionate rise planned for July
The CBA, Westpac and Deutsche Bank forecast another half-percentage point increase in July, while ANZ forecast that the RBA would increase by a quarter of a percentage point next month and then increase by half a percentage point in August.
“One or two more rate hikes over the rest of 2022 are possible if the data remains ‘resilient’ despite all the pressure on households,” said David Plank, head of ANZ’s Australian economy. in a note.
The CBA expected to see the cash rate target at 2.1 percent by the end of the year, while Deutsche Bank said it could reach that target as early as October.
At this point, we believe it is likely that the RBA will stop as it assesses inflation data and wages for the second half of the year in a context of “neutral” policy-making, “said the economist in Deutsche Bank chief Phil O’Donaghoe in a note.
“Serious savers must buy”
Other major banks are expected to follow suit to pass on the total rate hike to borrowers instead of savers.
RateCity research director Sally Tindall said savers hoping to get a big boost with the RBA rise “shouldn’t hold their breath.”
“After the RBA rose in May, banks rapidly raised home loan rates, but two out of five banks did not touch their savings rates,” he said.
“For banks that raised savings rates, in many cases only the selected accounts were increased, while others remained sadly low.”
The latest APRA statistics from April show that Australian households have a record total of $ 1.27 trillion in the bank, an increase of $ 281 billion since the pandemic.
“Many banks remain unwilling to substantially increase their savings rates until Australians start spending part of the record amount of cash they have saved,” Tindall said.
“As a result, serious savers may have to buy and be willing to jump through a few hoops to qualify for higher interest rates.”
Posted 1 hour ago 1 hour Tuesday, June 7, 2022 at 9:30 AM, updated 14 m ago, 14 minutes ago, Tuesday, June 7, 2022 at 10:25 AM