Westpac was the first to announce that it would raise its variable interest home loan rates by 0.25 per cent but the Commonwealth Bank of Australia, National Australia Bank and ANZ quickly followed suit.
Westpac’s changes will take effect from February 17 while the other banks will shift on the 13th.
The central bank’s updated economic forecasts didn’t bode well for borrowers, with inflation not predicted to come back into the 2 to 3 per cent target band until June 2027, and core inflation not tipped to reach the middle of that range for a further year.
But Governor Michele Bullock seemed genuinely unsure about what her bank’s next move will be.
“It is not the same as the tightening cycle when we were coming out of COVID, when we were coming from 0.1 per cent cash rate; it was quite clear that we had to go up and we had to go up quickly,” she said.
“This isn’t as clear.”
CBA’s economists expect another hike in May, taking the cash rate to 4.1 per cent, because there’s unlikely to be enough evidence by then to show today’s hike is slowing demand.
“Inflation is simply too high for the RBA at this stage, and the central bank has signalled a stronger resolve to bring it back within target,” Commonwealth Bank head of Australian economics Belinda Allen said.
NAB chief economist Sally Auld suspected this was unlikely to be a “one-and-done” scenario for the RBA.
Financial comparison site Canstar also warned homeowners to prepare for the possibility of future rate hikes while noting the banks’ silence on savings.
“None of the big four banks have said anything about savings rates – creating an unfortunate waiting game that keeps loyal savers in the dark,” data insights director Sally Tindall said.
“A climbing cash rate can be good news for steadfast savers, but know that banks often hand-pick which rates go up and which ones miss out.”
Investors ramped up bets for a follow-up hike in May, which is now priced about 75 per cent. Markets expect an additional total tightening of 40 basis points this year.
The RBA joins the Bank of Japan as the only other developed-world central bank tightening policy at the moment. Markets are still priced for rate cuts in the US, UK and Canada, while the European Central Bank is widely expected to be on an extended pause.
Markets had wagered on a 78 per cent probability of a hike given inflation surprised on the high side in the fourth quarter, while unemployment hit a seven-month low in December.
The Australian dollar extended earlier gains to be up 0.9 per cent to $US0.7002 while three-year government bond yields jumped 8 basis points to 4.3 per cent.
The RBA did not raise interest rates as aggressively as its international peers when inflation was running hot due to its desire to preserve gains in the labour market.
That approach may yet test policymakers. The central bank’s three rate cuts last year saw inflation rear its head again, forcing it to pivot towards a hawkish stance late in 2025 and prompting market bets of an earlier-than-expected start to the tightening cycle.
– reported with Reuters
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