Likelihood of hawkish RBA move growing higher by the day
Two of Australia’s largest home lenders have increased their fixed home loan rates, signalling heightened likelihood that more cash rate increases from the Reserve Bank of Australia (RBA) are on the way.
Commonwealth Bank jacked up its three-year fixed home loan by 25 basis points to 6.29%. It comes just over five weeks after Australia’s largest home lender slapped 70 basis points onto its fixed loans ahead of the RBA’s February rate call.
In raising prices in January, CBA accurately predicted that the RBA was set to increase the cash rate by 25 basis points to 3.85%.
CBA has now increased its fixed three-year rate by nearly a whole percentage point in the space of two months. It also announced a 25-basis-point increase to its floating home loan rate following the RBA’s February call.
CBA’s latest fixed-rate hike coincides with the January inflation print, which came in hotter than anticipated.
On a year-on-year basis, January inflation matched the December print of 3.8%, although analysts were expecting it to creep down to 3.7%. Trimmed mean inflation – which the RBA closely watches in order to guide monetary policy – increased from 3.3% to 3.4%.
“Australia’s January inflation adds to the risk of an RBA hike,” ANZ analysts said following today’s print. “The trimmed mean outcome adds some further risk that the RBA will hike the cash rate in May.”
CBA currently anticipates another RBA rate hike in May, which would bring the cash rate up to 4.1%. Given today’s mortgage repricing and hot inflation figures, all eyes will be on whether the bank grows more hawkish in the near future.
Westpac also increased its rates this Wednesday, by an even bulkier 30 basis points across its fixed-rate range, even though Westpac analysts said today’s trimmed mean print came in “as expected”.
“The TM lifted 0.3% in the month of January, on par with Westpac’s estimate of 0.3% with the higher than expected annual pace due to revisions,” said analysts.
Westpac was the last of the Big Four to raise rates following the RBA’s February call, having held off until 17 February while others opted for a 13 February pass through date.
At the time of writing, neither ANZ nor NAB had increased fix rates following Wednesday’s inflation print.
