Overview
On Feb 3, the country's four leading banks implemented increases to variable-rate home loans, each adding 25 basis points after the central bank raised its cash rate by the same amount. The Reserve Bank of Australia concluded its February policy meeting by lifting the cash rate to 3.85% in a unanimous decision, citing growth that was running faster than expected and a view that inflation was likely to remain above target for some time.
Bank actions and timing
Commonwealth Bank of Australia and Westpac set differing effective dates for their changes - CBA's new variable home loan rate adjustments come into effect on February 13, while Westpac's changes take effect on February 17. National Australia Bank and ANZ Group both said their hikes to standard variable home loan rates will take effect from February 13.
Business lending and ongoing reviews
In a separate announcement, CBA said it was increasing rates by 0.25% per annum on eligible variable-rate business lending products. ANZ stated that it "continues to review other interest rates," indicating potential further adjustments beyond the home loan change announced.
Context provided by the Reserve Bank
The RBA's policy statement after the meeting noted two central points that framed the banks' decisions: the economy's growth was stronger than previously expected, and inflation was viewed as likely to remain above the central bank's target for an extended period. Those assessments underpinned the unanimous decision to raise the cash rate to 3.85%.
Implications
The coordinated 25 basis point rises by the major private banks followed the RBA's action earlier in the day and include specified effective dates for implementation. One bank announced a parallel tightening on eligible variable-rate business lending, and another signaled continuing review of its broader rate schedule.
Key takeaways
- Top four banks raised variable home loan rates by 25 basis points following the RBA's cash rate increase to 3.85%.
- CBA and Westpac set effective dates of February 13 and 17 respectively; NAB and ANZ implement changes from February 13.
- CBA increased eligible variable-rate business lending rates by 0.25% per annum; ANZ is reviewing additional rates.
Risks and uncertainties
- Higher variable mortgage rates create the prospect of increased borrowing costs for households with variable-rate loans.
- Businesses with eligible variable-rate borrowing face specified rate increases in CBA's announcement.
- ANZ's statement that it continues to review other interest rates introduces uncertainty about further adjustments across loan products.