The Commonwealth Bank has hiked home loan interest rates for the third time in 6 weeks

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• CBA has lifted interest rates on fixed rate loans for the third time in six weeks, as the market puts pressure on borrowing costs.
• RateCity research director Sally Tindall said that although there are sever factors at play, the expiry of the RBA’s $188 billion low-cost commercial loan program in June is likely among the leading factors, leaving banks with no option but to hike rates to boost profits.
• Commercial borrowing costs are only expected to climb, too, as bond investors bet heavily on the idea that the RBA will lift the cash rate as early as May next year.
• Visit Business Insider Australia’s homepage for more stories.

The Commonwealth Bank of Australia has hiked interest rates for the third time in six weeks in a bid to get a handle on borrowing costs, as the market bets big on the RBA lifting the cash rate before 2024. 

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CBA, which has the largest share of Australia’s home loan lending market, increased its owner-occupier fixed interest rates by up to 0.30% on Friday, along with investor fixed interest rates, which were lifted by up to 0.60%. 

The bank’s two-year loans saw a lift of 0.25% to 2.59%, while its three-year rate was bumped 0.3% to 2.99%. CBA’s four-year fixed rate, meanwhile, rose by 0.20% to 3.09%, and its five-year rate spiked 0.30% to 3.39%. 

This week’s rate hike makes CBA the most expensive fixed rate home loan lender among the big four, adding about $80 a month in repayment costs to three- and five-year fixed rate home loans. 

RateCity research director Sally Tindall said that although there are several factors at play, the expiry of the RBA’s $188 billion low-cost commercial loan program in June is likely among the leading factors, leaving banks with no option but to hike rates in order to pad their profit margins.

“It’s raining rate hikes and the storm is nowhere near over,” Tindall said. “The flood of fixed rate hikes is likely to keep going as the cost of fixed-term funding continues to rise.”

“The number of fixed rates under 2% is dropping rapidly,” she said. Six months ago, there were 161 fixed rates under 2%. Today, there are just 87 and we expect this number to keep plummeting.”

As it stands, NAB is alone among the big four in offering a sub-2% fixed rate home loan, and even then, it’s a one-year fixed rate offering. At the same level, CBA is offering 2.49%, while Westpac is offering 2.24%, and ANZ is offering 2.29%. 

“While there is still a decent range of short-term fixed rates under 2%, there are now just three 3-year fixed rates under this mark, and no 4- or 5- year rates starting with a ‘1’,” Tindall said. 

“Surprisingly, Greater Bank is still offering the lowest fixed rate in our records at 1.59% for up to two years, however, this record-low rate is unlikely to see the year out,” she said.

And commercial borrowing costs are only expected to climb, as aggressive bond investors bet aggressively on the idea the Reserve Bank of Australia could hike the cash rate as soon as May next year — way before RBA governor Philip Lowe’s 2024 guidance. 

Even still, the market reckons there’s an inside chance that Lowe could follow in the footsteps of the Reserve Bank of New Zealand, and South Korea’s central bank, after the former rose rates on Wednesday, and Korea tightened on Thursday. 

Market analysts have warned, though, that there are key differences in the approaches of RBNZ and South Korea, and Australia. 

A crucial one, they say, is that Australia’s counterparts are operating within the bounds of more “traditional” central banking tightening methods, which will often see a central bank tighten while inflation fluctuates. 

“There’s a clear case for monetary policy in Australia to diverge from near peers and lag the eventual global normalisation,” James McIntyre, an analyst at Bloomberg Economics said earlier in the week. 

“Bargaining norms and government policies entrench a sluggish wage outlook, which will damp domestically-driven inflation pressures,” he said. 

“Australia’s labor market will need to run hotter for longer to achieve the wage growth outcomes necessary to sustain inflation within the RBA’s 2-3% target band.”

The story in Australia, as has been reiterated by Lowe ad nauseum over the last 12 months, is far more conservative than that of its counterparts. 

Some economists say that, if the governor’s language is anything to go by, it’s likely he’ll need to see inflation settle — “sustainably” — over the course of a full quarter before lifting rates. As such, a lift before August next year isn’t considered likely. 

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