Commonwealth Bank moves on interest rate hike: First major bank lifts mortgage rates after RBA hike

Commonwealth Bank moves on interest rate hike: First major bank lifts mortgage rates after RBA hike 2
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The Commonwealth Bank and ANZ have passed on the Reserve Bank’s interest rate hike, lifting their variable rates by half a percentage point.

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CBA, the country’s biggest home lender, announced the 0.5 percentage point increase in its home lending rates on Wednesday morning.

That increase for home borrowers was confirmed 20 hours after the RBA lifted the cash rate by 50 basis points to a three-year high of 1.35 per cent – marking the third consecutive monthly increase and the sharpest series of rises since 1994.

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Two hours after the CBA announcement, ANZ confirmed that it too would raise its variable rates by half a percentage point.

The Commonwealth Bank and ANZ changes both come into effect on July 15, making them the first two of the Big Four lenders to pass on, in full, the RBA increase.

That leaves Westpac and NAB to announce their changes. 

The Commonwealth Bank has become Australia's first major lender to lift its variable rates by half a percentage point to reflect the Reserve Bank's latest move (pictured is a Sydney bank branch)

The Commonwealth Bank has become Australia’s first major lender to lift its variable rates by half a percentage point to reflect the Reserve Bank’s latest move (pictured is a Sydney bank branch)

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Commonwealth Bank variable rate changes

Lowest variable: Up 0.5 percentage points to 3.29 per cent from 2.79 per cent

Popular variable: Up 0.5 percentage points to 3.39 per cent from 2.89 per cent

Discounted variable: Up 0.5 percentage points to 5.1 per cent from 4.6 per cent

Standard variable: Up 0.5 percentage points to 5.8 per cent from 5.3 per cent

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CBA’s popular variable rate is rising to 3.39 per cent, from 2.89 per cent, in nine days’ time. 

The latest 0.5 percentage point rise means a Commonwealth Bank borrower with an average $600,000 mortgage will see their monthly repayments surge by $163, rising from $2,495 to $2,658 as their variable rate rose in line with the RBA move. 

Angus Sullivan, CBA’s group executive of retail banking, said: ‘We understand the rapidly changing rate environment may raise questions for some of our customers and we are here to help them.’

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ANZ’s group executive of Australian retail banking Maile Carnegie said: ‘As the cost of living has risen, some customers may be looking for support while they reconsider their household budgets and ANZ is here to support them.’

The RBA’s move to hike rates means home borrowers have now been hit with 1.25 percentage points worth of rate increases over the past three months.

The Commonwealth Bank is expecting the RBA cash rate to peak at 2.1 per cent in November, under the current monetary policy tightening cycle. 

But last week, CBA raised its fixed mortgage rates by a massive 1.4 percentage points in a sign it is possibly expecting an even higher cash rate. 

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Financial markets are expecting a 3.5 per cent cash rate by March next year, which would mean eight more interest rate rises on top of the latest July increase (pictured is a graph depicting the Australian Securities Exchange's 30-day interbank cash rate futures)

Financial markets are expecting a 3.5 per cent cash rate by March next year, which would mean eight more interest rate rises on top of the latest July increase (pictured is a graph depicting the Australian Securities Exchange’s 30-day interbank cash rate futures)

Rate rise pain in 2022

MAY: The 0.25 percentage point rise was the first increase since November 2010, ending era of record-low 0.1 per cent cash rate

JUNE: The 0.5 percentage point rise was the biggest monthly increase since February 2000

JULY: The 0.5 percentage point increase means borrowers have copped 1.25 percentage points of pain in three straight months – most since October to December 1994

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ANZ is predicting a 2.6 per cent RBA cash rate by February 2023. 

Financial markets are expecting a 3.5 per cent cash rate by March next year, which would mean eight more interest rate rises on top of the latest July increase.

A cash rate at that level would mean a CBA borrower, with a 20 per cent mortgage deposit, would be paying a 5.54 per cent variable mortgage rate, instead of 2.89 per cent now until the Commonwealth Bank’s July 15 increase comes into effect. 

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This is slightly above CBA’s two-year fixed rate of 5.79 per cent, after it soared from 4.39 per cent.

The Australian Securities Exchange 30-day interbank futures market is expecting the cash rate to reach 3.5 per cent, a level last seen in October 2012, in March next year and plateau at that level into late 2023. 

RateCity research director Sally Tindall said the other big banks were set to raise their variable rates after CBA blinked first.

‘CBA has declared its hand and it’s now just a matter of time before the others follow,’ she said.

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The Reserve Bank has now also raised the cash rate at three consecutive monthly board meetings for the first time since 2010 and has strongly hinted at more pain for home borrowers in coming months.

Two hours after the CBA announcement, ANZ confirmed that it too would raise its variable rates by half a percentage point (pictured is the Seven Hills branch in Sydney's west)

Two hours after the CBA announcement, ANZ confirmed that it too would raise its variable rates by half a percentage point (pictured is the Seven Hills branch in Sydney’s west)

With inflation running at 5.1 per cent - the fastest pace since 2001 - Reserve Bank governor Philip Lowe has signalled more pain for home borrowers with unemployment at a 48-year low of 3.9 per cent and inflation well above the central bank's 2 to 3 per cent target

With inflation running at 5.1 per cent – the fastest pace since 2001 – Reserve Bank governor Philip Lowe has signalled more pain for home borrowers with unemployment at a 48-year low of 3.9 per cent and inflation well above the central bank’s 2 to 3 per cent target

Timing of variable rate announcements

COMMONWEALTH BANK: 10.27am, AEST, Wednesday

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ANZ:  12.15pm, AEST, Wednesday

RESERVE BANK RATE HIKE: 2.30pm, AEST, Tuesday 

With inflation running at 5.1 per cent – the fastest pace since 2001 – Reserve Bank governor Philip Lowe has signalled more pain for home borrowers with unemployment at a 48-year low of 3.9 per cent and inflation well above the central bank’s 2 to 3 per cent target.

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‘Global factors account for much of the increase in inflation in Australia, but domestic factors are also playing a role,’ he said on Tuesday afternoon.

‘Strong demand, a tight labour market and capacity constraints in some sectors are contributing to the upward pressure on prices.

‘The floods are also affecting some prices.’

Dr Lowe last month forecast Australia’s inflation rate hitting seven per cent for the first time since 1990 as Russia’s Ukraine invasion keeps global crude oil prices elevated.

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He signalled on Tuesday the RBA would keep raising rates to curb consumer spending.

‘One source of ongoing uncertainty about the economic outlook is the behaviour of household spending,’ Dr Lowe said.

‘The board will be paying close attention to these various influences on household spending as it assesses the appropriate setting of monetary policy.’

But at least savers will get better interest with CBA’s GoalSaver increasing by 0.5 percentage points to 1.25 per cent from July 15.

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The YouthSaver account for Commonwealth Bank customers under 18 will see its savings rate rise by half a percentage point to 1.45 per cent. 

ANZ is now offering a new 11-month Advance Notice term deposit rate of 2.50 per cent per annum, effective July 11.

What a 0.5 percentage point rate rise in July means for borrowers

$500,000: Up $136 from $2,079 to $2,215

$600,000: Up $163 from $2,495 to $2,658

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$700,000: Up $191 from $2,910 to $3,101

$800,000: Up $218 from $3,326 to $3,544

$900,000: Up $245 from $3,742 to $3,987

$1,000,000: Up $273 from $4,157 to $4,430

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Monthly repayments based on popular Commonwealth Bank variable rate rising from 2.89 per cent to 3.39 per cent should the Reserve Bank cash rate in July rise from 0.85 per cent to 1.35 per cent

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