Lenders move early amid uncertainty over future rate decisions
Several Australian banks have raised fixed mortgage rates, signalling a shift in expectations about the Reserve Bank of Australia’s (RBA) next moves on monetary policy.
The changes come after a period in which lenders had been reducing fixed rates, anticipating further cuts. That outlook has changed following recent inflation data.
The RBA left the cash rate unchanged at its latest meeting, responding to higher-than-forecast inflation for the year to September. In the wake of this decision, major banks, including the Commonwealth Bank of Australia, have revised their forecasts, with some now expecting that the cycle of rate reductions has ended.
Among the lenders increasing fixed rates is St George, which has lifted some rates by as much as 0.35 percentage points, according to Compare the Market. St George stated that its fixed home loan rates must “remain aligned with current market conditions”.
Westpac has also raised certain fixed rates, citing “the increased cost of fixed rate funding and ensures our fixed home loan rates remain aligned with current market conditions".
David Koch, economic director at Compare the Market, commented on the implications for borrowers. “This could be an ominous sign for a lot of Australians hoping for an interest rate cut in the first half of next year,” he said. “I reckon there’s a really good argument that maybe this is the bottom of the interest rate cycle.”
He noted that if inflation, as measured by the consumer price index, accelerates, rate hikes could follow. “There could be an option that rates go up next year, because the Reserve Bank is so worried that inflation is going to get out of control,” Koch added.
Peter Marshall, banking and interest rates analyst at Mozo, said the recent fixed rate increases reflect uncertainty about the RBA’s next steps. “The increases to fixed rates could either mean that lenders are anticipating the next move from the RBA will be a hike, or that they expect the cash rate to remain where it is for a longer period,” he said.
“Right now the future direction of the cash rate seems unclear, but we expect that more lenders will start to lift their fixed rates over coming weeks as the probability of another rate cut seems to have diminished.”
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