Some major Aussie banks have started raising their fixed rates.
Interest rate hikes could be occurring sooner than many previously thought.
Banks have begun to raise their charges on fixed rate loans in a move experts are warning could be an “ominous” sign lenders anticipate the Reserve Bank of Australia will increase the cash rate next year.
Lenders had been dropping fixed rates on loans in the lead up to the last Reserve Bank board meeting earlier this month, a trend largely driven by an expectation of more rate cuts this year and in 2026.
It appears this thinking may have gone out the window following higher than expected inflation over the year to September, which prompted the central bank to keep the cash rate on hold.
Australia’s major banks have since announced revised rate change expectations, including CBA, which declared the recent interest rate cutting cycle was likely over and no more cuts were forecast.
RBA governor Michele Bullock has emphasised that taming inflation remains a priority. Picture: Nikki Short
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Lenders who have recently increased their fixed rates included St George, which announced hikes of up to 0.35 per cent on some of its products, according to Compare the Market analysis.
St George cited that fixed home loan rates must “remain aligned with current market conditions”.
Westpac announced similar increases on some of its fixed rate products, which the bank said reflected “the increased cost of fixed rate funding and ensures our fixed home loan rates remain aligned with current market conditions”.
Compare the Market economic director and former Sunrise host David Koch said these moves did not bode well for Aussies hoping for more interest rate relief.
“This could be an ominous sign for a lot of Australians hoping for an interest-rate cut in the first half of next year,” Mr Koch said.
“I reckon there’s a really good argument that maybe this is the bottom of the interest rate cycle.”
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Compare the Market’s David Koch said there could be an argument for a rate hike if high inflation persists. Picture: Monique Harmer
Mr Koch said there could even be rate hikes if inflation, as measured by the consumer price index, accelerated.
A reading of 4 per cent, above the 2-3 per cent target range of the RBA, would be enough for the cash rate to be increased, Mr Koch said.
“There could be an option that rates go up next year, because the Reserve Bank is so worried that inflation is going to get out of control,” he said.
Mozo banking and interest rates analyst Peter Marshall said fixed rate increases reflected an environment where the next RBA moves were uncertain.
“The increases to fixed rates could either mean that lenders are anticipating the next move from the RBA will be a hike, or that they expect the cash rate to remain where it is for a longer period,” Mr Marshall said.
“Right now the future direction of the cash rate seems unclear, but we expect that more lenders will start to lift their fixed rates over coming weeks as the probability of another rate cut seems to have diminished.”
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Mr Koch added that another cut, which many homeowners had hoped to get this year or early next, would probably only occur if there was a marked fall in employment.
“The only thing that will possibly bring a rate cut into the future is if unemployment rises considerably,” he said.
“We’ve seen that happening in the United States. The recent rate cut by the Federal Reserve was not based on inflation, because it’s still a bit higher than it should be in the US, but they can see a deterioration in the unemployment figure.
“And remember, the Reserve Bank has two jobs – keep inflation under control and keep Australians in work. So, if there’s a big jump in the unemployment rate, you might see the Reserve Bank thinking to itself, ‘okay, we’ll sacrifice inflation and the problems with inflation, to keep Aussies in work’ and will cut rates.”
Mr Koch said those tempted to fix their rates should consider the comparison rates, which were a more accurate indication of the total costs.
“It doesn’t have to be all in on the fixed rate or a variable, you can look at a cocktail to split and hedge your bets. But do your sums carefully.”
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