Banks likely to hike as RBA keeps rates on hold

Economists expect Australia’s biggest banks to hike interest rates over the next 12 months even as the Reserve Bank keeps the official cash rate at its record low.

The RBA held the cash rate at 0.1 per cent at this month’s board meeting, acknowledging that the Delta outbreak had interrupted the nation’s economic recovery.

Once again, RBA Governor Philip Lowe said it would not be until 2024 that wages growth and inflation would be at a level that would warrant an increase to the official cash rate.

That hasn’t dampened speculation, however, that banks are likely to move independently of the RBA, with 50 per cent of the economists surveyed by Finder predicting rates would rise out of cycle within a year’s time.

Finder head of consumer research Graham Cooke said banks changed rates seven times during the last stable period, with four of those changes being rate hikes.

“Those who aren’t on a fixed mortgage should stay alert to any changes from their bank, as it could mean substantially higher monthly repayments,” Mr Cooke said.

Finder’s survey also showed many expect the Australian Prudential Regulation Authority to implement lending restrictions to slow down the nation’s house price boom.

Mr Cooke said APRA’s recent statement that it was looking closely at income-to-price ratios could be an early indication that lending restrictions were coming soon.

CoreLogic head of research Eliza Owen said the current policy settings remained conducive to price growth, but warned headwinds could be on the horizon, including tighter credit conditions.

“In recent months, the RBA has reiterated that house prices are not an area of direct responsibility for the RBA,” Ms Owen said.

“In fact, the rising wealth effects and transaction activity associated with high housing demand has likely supported economic conditions throughout COVID-19.

“However, there is mounting expectation that the housing lending space could see some macro prudential intervention.

“In its statement today, the RBA made direct reference to the importance of appropriate loan serviceability buffers in the current environment.”

Constant refinancing from mortgage holders could also be an issue for lenders in the near future, Finder’s survey showed.

Data from the Australian Bureau of Statistics showed the total value of refinanced loans reached $17.9 billion in July, a record high and an increase of 47 per cent from the same time last year.

“While home owners are eager to make the most of record low interest rates, lenders are aggressively competing for market share with cashback offers up to $4,000,” Mr Cooke said.

“With many refinance offers getting you a better rate and thousands in cash, it’s no wonder Aussies are home loan shopping.”