Most borrowers yet to feel the full force of 10 consecutive rate rises
- CBA says less than half the cash rate hikes thus far have been felt by the consumer.
- As such, the RBA may look to pause in April.
- RBA decision also reliant on four pieces of economic data - two came out stronger than expected, while two will be released next week.
On Thursday (AEDT) the US Federal Reserve hiked its policy rate by 25 basis points to 5.00%.
The RBA board will meet Tuesday-week on 4 April to decide if the cash rate goes up, down, or stays the same.
Despite 10 consecutive hikes to the cash rate - the most elongated and sharpest tightening in Australian history - CBA economist Gareth Aird (pictured below) said much of this is yet to be felt by the mortgagor.
"Only around 45% of the increase in the cash rate to date had passed through to scheduled mortgage repayments at the end of 2022," Mr Aird said.
This gives credence to the 'pause' camp.
This may be partly due to banks' responsible lending obligations - they are required to wait 20 days from rate rises becoming effective before they increase the repayments.
This also means a higher proportion of the repayment goes towards repaying interest, rather than principal, for a short period - this could lengthen the life of the loan.
As Savings.com.au has doggedly pursued for 10 months now, the RBA increases the rate on the first Tuesday of the month; from there, banks announce something a day or two later; the rate change is not effective until a few weeks later; and 20 days after that repayments change.
Some lenders such as Unloan wait even longer before rate rises take effect, often operating on a two-month lag, which pushes the repayment increase out further.
What are the ingredients in the April RBA rate cake?
There are four ingredients the RBA will look at to form part of its April monetary policy decision.
| Upcoming Data | Release Date | CBA's call | Supports rate pause? |
| Retail Trade February | 28 Mar | -0.3% | Yes |
| Monthly Inflation (Annualised) | 29 Mar | 0.5% fall to 6.9% | Yes |
| Released Data | Result | ||
| NAB Business Sentiment | 14 Mar | 1pt fall to 17 (still high) | No |
| Unemployment February | 16 Mar | 0.2% fall to 3.5% | No |
Two of the ingredients released support another hike, while the two forthcoming are forecasted to support a rate pause.
It should be noted the unemployment data was stronger than anticipated, with data continuing to defy forecasts.
However, Mr Aird said CBA's position as Australia's largest bank puts it at an advantage.
"At CBA we have access to a lot of internally generated data, which improves the accuracy of the forecasting process," he said.
"Our RBA call for the April Board meeting will be conditional on the outcomes of the data next week - we currently have a 25 basis point hike in our profile in April for a peak in the cash rate of 3.85%."
If forthcoming economic data is stronger than expected, Mr Aird said the RBA may well press on with another 25 basis point hike.
"We continue to expect 50 basis points of rate cuts in late 2023 and a further 50 basis points of easing in the first half of '24," he said.
This is slightly at odds with its trillion-dollar bank compatriot Westpac, with its chief economist Bill Evans saying the RBA will pause in April.
The RBA board meeting minutes for February hint at this being the case as well.
“Members agreed to reconsider the case for a pause at the following meeting, recognising that pausing would allow additional time to reassess the outlook for the economy,” the minutes read.
Wealth data released on Thursday shows net worth per capita took a hit in the December quarter, largely due to falling house prices and fluctuating super balances, which were partially offset by a rise in over $32 billion in deposits thanks to extra interest on deposit accounts.
Data suggests (table below) consumers are willing to draw down on their savings buffers accumulated during the pandemic before changing their spending habits, with credit card and retail spending still elevated.
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
