Australia’s major banks have begun increasing fixed interest home loan rates whilst the official cash rates unchanged with the RBA signalling it was unlikely to do so until 2024.
Banks have mentioned that wholesale funding costs have increased, partly due to the RBA’s decision to shut down its Term Funding Facility (TFF) which lent out $188bn to banks at extremely low rates. Further speculation from traders that are expecting an interest rate hike have caused overall wholesale rates to increase with the ASX’s cash rate tracker forecasting a 1.2% cash rate by April 2023. NAB was the first to raise fixed rates by 0.2% followed by Westpac (0.1%) and CBA (0.1%) ahead of the RBA’s statement.
However, the RBA has remained adamant that a lift in the cash rate will occur in 2024 but may be forced to raise a year earlier if inflation and wages growth exceed its current expectations. This will require wages growth to rise to at least 3% per annum by 2023, ending the pattern of low wage stagnation with growth stuck below that level since 2013 and allowing Australia to reach a sustainable increase in inflation. Australia’s current inflation of 3.0% in the September Quarter has been largely induced by the unwinding of free childcare in 2020 alongside transitory bumps in shipping costs from delays in the global supply chain.