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Highlights
- The Reserve Bank of Australia (RBA) announced its first cash rate hike in over a decade and raised the cash rate to 0.35%.
- The central bank tightened its monetary policy to combat inflationary pressures building up in the economy.
- Big four banks have all raised their interest rates in line with the cash rate hike, with NAB being the last bank to do so.
As the Reserve Bank of Australia (RBA) recently announced its first cash rate hike in over a decade, the economy is still adjusting to the shocking news. The RBA raised rates by 25 basis points, bringing the cash rate to 0.35%. All the banks in Australia have taken a similar route of raising interest rates by 25 basis points. Through this hike, commercial banks have directly passed the cash rate hike to customers.
The Reserve Bank took this historic decision to combat the rising cost-of-living pressures. The sharp uptick in inflation has compelled the central bank to act and plan a return to normal inflation levels. Through a rate hike, banks would be able to control the amount of money supply in circulation. Inflationary pressures are expected to take a back seat as the central bank withdraws some of the money supply from the economy.
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Inflation is rising annually at a worrying rate of 5.1%, impacting consumer prices across all sectors. Consequently, monetary policy action was sought to remedy the rising prices. Here is how commercial banks have reacted to the extraordinary decision by the RBA.
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Westpac Banking Corporation (ASX:WBC)
Westpac responded quickly to the RBA announcement of a rate hike by sending out a tweet within minutes of the cash rate hike announcement. Though the bank did not specify the magnitude of its rate hike, it indicated that it is “reviewing” its current rates and would update its customers.
Later, the bank raised home loan variable interest rates by 0.25% for new and existing customers from May 17. The bank will also raise some of its deposit interest rates by 0.25% on Westpac Life, Westpac 55+ and Retired accounts.
Commonwealth Bank of Australia (ASX:CBA)
Commonwealth Bank was one of the first banks to raise rates after the RBA’s announcement. It announced an increase in home loan variable interest rates in line with the RBA’s hike. The rate hike of 25 basis points would be effective on home loans from May 20.
Consequently, the standard variable interest rate for owner-occupiers paying principal and interest now stands at 4.8%. The home loan rate for investors paying principal and interest will also be increased by 25 basis points, bringing the total rate to 5.38%.
CBA has not yet announced any changes to its deposit rate, which means that savings may not reap as high a benefit as anticipated from the RBA announcement.
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Australia New Zealand Banking Group Limited (ASX:ANZ)
ANZ has also taken a similar stance and decided to raise variable mortgage rates by 25 basis points, passing on the full cash rate hike to its customers. It is important to note that the cash rate is the rate at which commercial banks do overnight funding with each other. Thus, a rising cash rate means increased lending costs for commercial banks on overnight funds.
For standard variable rate owner-occupiers paying interest and principal, the index rate will change to 4.64% from the previous 4.39%. ANZ stated that its current hike would raise monthly repayments by AU$57 per month for those with an AU$450,000 mortgage.
Interest-only loans would see a rise in interest rate to 5.19%. These new rates will be applicable from May 13. However, just like CBA, ANZ has also not announced any changes in the deposit rates.
National Australia Bank Limited (ASX:NAB)
National Australia Bank announced a change in its interest rate one day after the RBA’s announcement came out. NAB’s decision was the last among the big four banks, making the rates in all four banks higher and in line with the RBA’s decision.
The standard variable home loan and its reward saver bonus interest rates have been increased by 0.25%. The bank’s standard variable home loan rate now stands at 4.77%. For those paying principal and interest on a 30-year loan worth AU$400,000, the rate hike would translate into an additional AU$57 being given out each month as repayment. These changes would come into effect from May 13.
NAB has taken the thoughtful decision of raising the deposit rates for its customers, even though the number of loans given by the bank is lower than the number of its savings accounts. However, the bank wishes to support these customers by offering them a savings rate that is in line with the market.
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