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  • Writer's pictureCrest Economics

Elevated interest rates are here to stay as the new norm- July 2023

Home loan interest rates charged by the major retail banks to new borrowers are outpacing increases in the official cash rate rises as lenders transition from writing mortgages at extremely cheap rates during the pandemic to focusing on profits and dividends. The largest 4 banks have lifted rates by 0.32% more than the RBA’s rate rise on basic home loan products. A drastic shift from the cut-throat pricing last year when rates increased at an average of 0.23% less than the RBA’s 3% rises.

Whilst aggressive mortgage lending at a discount and the rise of cashback offers led to banks’ loan books ballooning, lenders are now shifting to recouping profit margins to bolster earnings. Major banks have increased rates for new borrowers on average 4.5 times over the past five months, while the RBA has lifted the cash rate three times. Higher rates passed on by the banks and the contractionary effect on the economy would be welcomed by the central bank as inflation sits at 6.0%, slightly lower than the 7.0% in the March Quarter.

The country’s largest bank, CBA, is expecting a final cash rate hike in August to 4.35% while NAB sees the cash rate peaking at 4.6% and staying there until March 2024.

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