Just weeks after hiking mortgage interest rates 0.25 per cent each of Australia's big four banks and the Reserve Bank have done it again adding a further $46 per month to the cost of servicing a $300,000 mortgage, with no end in sight.
The ANZ acted within minutes of the Reserve Bank's announcement. By late in the day each of the big four had announced plans to pass on in full Reserve Bank hike of 0.25 per cent from next week. The ANZ and Westpac standard variable rates will jump to 6.31 per cent; the Commonwealth and National Australia Bank's rates to 6.24 per cent.
The speed on the decisions is in contrast to the uneven and tardy responses of the big four when rates were coming down.
The changes will force a household with a $300,000 standard variable mortgage to pay $92 more per month than before the first hike last month. A household with a $500,000 mortgage will pay an extra $154.
The wording of the terse six-paragraph statement from Reserve Bank Governor Glenn Stevens makes clear that there is more to come...
Breaking ranks with the Treasury which Monday predicted weak economic growth in the year ahead the Governor said he expected growth "close to trend over the year ahead", building a case for the Reserve Bank to push its cash rate to normal or "neutral" within the year.
The Reserve Bank is understood to believe that the so-called neutral cash rate that neither stimulates economic activity nor winds it back in is somewhere above 5 per cent, implying that there is room for an extra six rate hikes of 0.25 per cent to bring the present cash rate of 3.5 per cnet into line.
Such a series of hikes would push the standard variable mortgage rate to 7.75 per cent, eventually adding an extra $287 per month to the cost of repaying a $300,000 standard mortgage - in total an extra $380 since the hikes began.
But the Bank board is giving every indication the path will be gradual, expressing concern in its statement that as the effects of various government stimulus measures wear off some parts of the economy may "soften".
"It's open-minded about pausing in December to sniff the breeze and assess the lay of the land before probably before hiking again in February," said Macquarie Reserve Bank watcher Rory Robertson. " Its objective simply is to edge up its rate to more-normal levels."
Opposition Leader Malcolm Turnbull blamed the Rudd Government’s "big spendathon" for the hike and said the rate rises would "continue for some time".
Treasurer Wayne Swan said rates would go up as the economy recovered.
"Interest rates can’t stay at 50-year emergency lows forever, and it is dishonest for anybody to claim that they can. To someone with an average home loan this will mean an increased payment of something like $46 per month. But even that family would still be something like $662 per month better off than when rates peaked, because they are still historically very low."
In August last year a family with a $300,000 mortgage was paying $2646 per month. Even after the latest hike they are paying a much lower $1985.
In good news for savers the Commonwealth and National Australia banks will boost will boost their rates on basic deposit accounts 0.25 per cent, and the ANZ 0.35 per cent.
Published in today's SMH and Age
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