Size, scale of CBA’S rate rise is unusual

COMMONWEALTH Bank has hiked all its fixed-rate mortgages by a whopping 140 basis points, ahead of an expected 50 basis-point increase in the cash rate at next week’s Reserve Bank board meeting.

CBA attributed the move to “current market conditions” and an increase in funding costs, noting that it had also cut its lowest variable rate home loan by 15 basis points to 2.79 per cent.

The revised rate was limited to new customers with a 30 per cent deposit.

Analysts said CBA’S move on fixed rates was unprecedented, lifting the majority of its fixed-rate terms to well above 6 per cent, compared to less than 2 per cent about a year ago.

“We haven’t seen one-off hikes of this size and scale from CBA in our records,” said Sally Tindall, research director at independent financial comparison website Ratecity.

“The bank is responding to the rising cost of fixed-rate funding and a market that refuses to believe the RBA will stop hiking the cash rate at around 2.5 per cent.

“It’s incredible to see fixed rates move this dramatically in such a short space of time.”

Ms Tindall predicted other banks would soon follow, with Westpac and National Australia Bank currently undercutting CBA in many cases by more than a percentage point.

Variable rates, meanwhile, are expected to continue their upward trajectory next week, as most pundits expect a second consecutive 50 basis-point hike in the cash rate to 1.35 per cent.

CBA’S economics team described it on Thursday as “the most obvious policy choice”.

“(RBA governor Philip Lowe) will likely refer to the increase in the 2022-23 minimum wage of 5.2 per cent and the RBA’S upward revision to their assessment of the nearterm inflation outlook as justification,” CBA said.

Minutes of the RBA’S June board meeting said directors discussed the possibility of a 25 basis-point hike as well as 50 basis points, opting for the latter because of the inflation outlook and the fact that official rates were still very low.