Oil price shocks, hawkish RBA forecasts causing market-wide mortgage repricing
There has been a hive of activity on the fixed-rate mortgage markets this week.
Earlier this week, Australia’s sixth-largest lender, ING, lifted its fixed principal-and-interest mortgage rates by 35 basis points across the board, pushing its three-year fixed rate to 6.24%.
Macquarie Bank has followed suit, increasing fixed rates by 35 basis points, including lifting its one-year fixed rate to 6.44%. Commonwealth Bank, meanwhile, plans to raise its fixed rates by 30 basis points from this Friday.
These latest moves come on the heels of a smorgasbord of fixed-rate hikes at the end of February, when Westpac, HSBC and CBA all pushed their fixed mortgage rates higher.
This interminable march higher of fixed rates gives a good insight into what the big banks are seeing when they peer into their crystal balls.
While variable rates tend to track the latest Reserve Bank of Australia (RBA) cash rate increase, fixed mortgage pricing is more nuanced – and forward looking.
“I think it's important to keep in mind that variable rates will very closely track the RBA official cash rate, whereas fixed rates are priced off the swap market, which itself is priced off the bond market,” explained Bendigo and Adelaide Bank chief economist David Robertson (pictured). “The increases in fixed-rate lending are a reflection of the market's assessment that we're going to have higher interest rates ahead.”
With higher interest rates being forecast, banks are acting now to preserve their margins.
As Sergio Delvescovo, national sales manager, retail broker channel at ING Australia, told MPA regarding the bank’s fixed-rate increases: “These changes reflect shifts in funding costs and the pricing environment more broadly, and ensure we can continue offering competitive products while supporting customers responsibly.”
The tone was the same at CBA, with a spokesperson referring to “broader funding and market conditions” which have impacted “advertised fixed home loan rates for new lending, effective 27 March 2026”.
It all comes back to oil prices
It is hard to deny that the swathe of fixed rate increases has been influenced by the ongoing energy crisis sweeping across Australia.
While there have been mixed messages emerging from US president Donald Trump’s camp about winding down the Iranian conflict, the war continues to rage on, and the Strait of Hormuz – a vital chokepoint through which around a fifth of the world’s oil supply passes – remains closed.
With surging fuel prices at the pump all but certain to feed into higher inflation, markets have understandably raised the odds of additional RBA rate hikes this year.
“The fact that the market has had to deal with the RBA moving from an easing cycle to a tightening cycle, and then secondly, on top of that, with the Middle East conflict, (they’re) now needing to consider what higher energy prices are going to do to future RBA decisions. It’s been a really remarkable change in the shape of the yield curve,” said Robertson.
Consider the three-year government bond yield, which dipped as low as 3.2% last July but has since soared as high as 4.8% in recent days. It has since retreated to the 4.7% mark.
“That's the market assessing where they think the cash rate will go over a three‑year period. It recognises there are going to be scenarios that might unfold where it goes higher than that, there might be scenarios that unfold that are lower, but that's the median expectation,” noted Robertson.
Taken at face value, that suggests at very least two more cash rate increases are on the way, although the market’s track record is not flawless. The fact that yields dropped to the low 3% mark nine months ago is testament to that.
Will the RBA bide its time?
In short, the mortgage markets are telling us what we already know: Funding costs are on the rise, and mortgage holders will be paying the price.
But while the majors broadly anticipate another RBA rate hike in May, Robertson is wondering if the central bank will be a bit more patient than that.
He is forecasting the next rate hike for August, which will bring the cash rate to 4.35%, with another hike in the tank before February 2027 rolls around. “But that will all be very dependent on just how high inflation goes amid the energy shock. We're very much at the mercy of the Middle East conflict. Let’s hope there’s deescalation soon.”
However, if the RBA does front-end rate hikes in May, we could see less repricing activity on the fixed-rate mortgage markets, since the banks have been proactive in hedging their bets against higher funding costs down the line. Although nothing is set in stone.
