Loan interest

ABC and Westpac raise fixed interest rates on home loans

  • Commonwealth Bank raised fixed-rate mortgages from 0.25% to 0.4% after the RBA announced it would scrap its three-year bond yield target.
  • The CBA became the second bank in 24 hours to raise borrowing rates, after Westpac moved in the same direction on Thursday night.
  • Analysts say it won’t be long before the remaining big four banks follow suit, after the central bank failed to defend its bond yield in the face of a market wave last week.
  • Visit the Business Insider Australia homepage for more stories.

Commonwealth Bank and Westpac each raised borrowing rates after the Reserve Bank of Australia announced on Tuesday that it scrap its April 2024 government bond yield target by 0.1%.

The CBA, which has the largest share of Australia’s home loan market, raised its previous sub-2% fixed-rate loan by 35 basis points to 2.34% on Friday, while its four-year fixed-rate loan was pushed 50 basis points to 2.89%.

The move is coming less than 24 hours after Westpac moved in the same directionincreasing its three-year fixed rate for homeowners by 21 basis points to 2.29%, as well as its four- and five-year fixed rates, which each increased by 10 basis points to 2.69% and 2, 99% respectively.

As it stands, NAB offers the lowest three-year fixed rate, at 2.28% with a comparison rate of 3.91%, while ANZ has the highest rate, with a fixed over three years of 2.39% and a comparison rate of 3.27%.

Canstar financial expert Steve Mickenbecker says the remaining big four banks should follow suit and push interest rates higher, after the RBA failed to defend its three-year bond yield target , as yields began to rise in response to new inflation data released last week. .

The data prompted traders to raise the rate on the Bank’s April 2024 bond last Friday to more than eight times its target of 0.1%, according to Bloomberg data.

Yarra Capital economist Tim Toohey on Tuesday criticized the Bank’s failure to seize opportunities to keep the yield low and then abandon the policy altogether after refusing to defend it.

“The RBA’s abandonment of the 3-year yield curve control policy was mishandled. The policy was introduced to provide certainty for risk takers, but instead we saw a huge volatility seeping into the broader bond market due to the RBA’s refusal to defend its own policy,” Toohey said.

“Not only has this caused one of the biggest liquidity squeezes in decades, but it has left risk takers wondering if they can trust the rest of the RBA’s guidance going forward. The heightened volatility and the higher level of yields will invariably cause mortgage rates to rise in the months ahead.”

The Bank of Canada dropped a similar bond-buying policy stimulus on Wednesday last week, and the U.S. Federal Reserve announced yesterday that it will start reducing its bond purchases by $15 billion a month from November.

However, the RBA has made no mention of suspending interest rate hikes until 2024, but economists predict that based on the central bank’s forecast – which indicates it will not raise interest rates rates as long as inflation does not exceed 2.5% – rates could increase as early as next year. .

“The board will not raise the cash rate until actual inflation is sustainably within the 2-3% target range. This will require the labor market to be tight enough to generate substantially higher wage growth than it currently is. It will probably take some time,” RBA Governor Philip Lowe said on Tuesday.

“The board is prepared to be patient, with the central forecast being that core inflation will not rise above 2.5% by the end of 2023 and a gradual increase in wage growth.”

After its monthly meeting on Tuesday, Lowe announced that the central bank would continue to buy $4 billion in government bonds per week until mid-February, but would drop its government bond yield target. April 2024 by 0.1%.

“The decision to scrap the yield target reflects the improving economy and earlier than expected progress toward the inflation target,” Lowe said.

“Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in maintaining the general rate structure interest in Australia has declined.”