In a significant shift of financial forecasts, the Commonwealth Bank of Australia has aligned with other major banking institutions in revising its predictions for the Reserve Bank of Australia's cash rate. The bank now anticipates a 0.25 percentage point increase next Tuesday, followed by another hike in May. This move places CBA alongside National Australia Bank and Westpac, all of which are projecting back-to-back rate rises across three successive meetings, noting that the central bank has no scheduled meeting in April.
Diverging Views Among Major Banks
However, not all financial giants are on the same page. ANZ remains an outlier, maintaining its expectation that the RBA will hold off until May before making any adjustments. The bank cites ongoing uncertainty regarding the full impact of previous rate increases on inflation, describing this as creating 'a difficult reaction function for the RBA.' This divergence highlights the complex economic landscape facing policymakers.
Immediate Impact on Mortgage Holders
The potential consequences for Australian homeowners are substantial and immediate. Should the RBA proceed with a rate hike in March, a borrower with a $600,000 mortgage and 25 years remaining on their loan would need to find an additional $91 each month. This financial pressure compounds significantly with further increases.
If two hikes occur this year, in February and March, the total increase in monthly repayments would reach $181. In a scenario involving three consecutive hikes, that figure escalates to $272 per month. For those carrying a $1 million debt, the impact is even more severe, with minimum repayments potentially rising by almost $500 monthly.
Lenders Already Adjusting Rates
Data from financial comparison service Canstar reveals that lenders are not waiting for official announcements. In the past fortnight alone, 20 financial institutions have increased a total of 369 fixed mortgage rates in anticipation of Tuesday's RBA Board meeting. This proactive adjustment serves as a strong indicator that banks are bracing for another rate rise.
Similarly, term deposit rates—often viewed as early indicators of monetary policy shifts—have also seen movement. Canstar tracking shows 41 banks have increased 184 term deposit rates over the same two-week period. Sally Tindall, Canstar's Data Insights Director, described these movements as 'two very loud canaries in the coal mine,' signaling broader financial market expectations.
Inflation Concerns Driving Policy
The revised outlook from major banks reflects growing unease within the RBA regarding a recent jump in headline inflation, largely driven by rising oil prices. Crude oil surged to nearly $US120 per barrel earlier in the week as escalating conflict in the Middle East threatened prolonged disruption to the Strait of Hormuz. This critical corridor handles approximately 20 percent of global energy supply, adding pressure to inflationary trends.
Ms. Tindall noted that CBA's alignment with NAB and Westpac followed comments from RBA Deputy Governor Andrew Hauser, who reiterated the central bank's determination to combat what he termed 'toxic' inflation. However, she added that Hauser acknowledged more than once that the decision would be 'a line-ball call,' stating that 'the Board has its work cut out for it next week.'
A Sharp Shift in Expectations
This collective forecast marks a dramatic departure from earlier predictions of a single rate move in May. Three of Australia's four major banks now anticipate the cash rate peaking at 4.35 percent. A March increase would represent the second RBA hike in as many meetings, and financial experts warn that this may not be the end of tightening measures.
'CBA, Westpac and NAB all believe we'll see another hike in May, which would make it three hikes in as many meetings,' Ms. Tindall explained. She emphasized that these increases come at a challenging time for consumers, who are likely facing higher costs for petrol and other everyday essentials alongside their mortgage repayments.
Advice for Mortgage Holders
In light of these developments, Ms. Tindall offered clear guidance to borrowers. 'If you have a mortgage, start preparing for higher rates,' she urged. Noting that more than 40 lenders still offer at least one variable rate under 5.50 percent, she advised homeowners to 'switch, haggle, do whatever it takes to get yourself on a lower starting rate in case the one rise we saw last month turns into a rate hike frenzy.'
The RBA is scheduled to announce its next interest rate decision on March 17, with another board meeting following in May. As these dates approach, Australian households and financial markets alike will be watching closely, preparing for potential shifts that could reshape economic conditions for months to come.
