CBA makes major statement on rate rises, predicts cash rate rise in 2022

Big bank predicts rate rise ahead of RBA schedule

CBA makes major statement on rate rises, predicts cash rate rise in 2022


By Mike Wood

CBA has publicly warned that interest rates may rise earlier than the Reserve Bank of Australia’s target of 2024.

Gareth Aird, head of Australian economics at the bank, wrote a note that explained that CBA’s economic forecast was telling them that the case rate was likely to move in late 2022, over a year ahead of what the RBA are saying.

"Our central scenario has the RBA delivering the first hike in the cash rate in November 2022," said Aird. "We have pencilled in an increase of 15 basis points, which would take the cash rate to 0.25 per cent.”

"We expect that to be followed by an increase of 25 basis points in December 2022. We have three further 25-basis-point hikes in Q1 23, Q2 23 and Q3 23 [the first, second and third quarters of 2023]."

CBA have already taken several steps that have preceded this more public statement.

In the last month, they have hiked long-term rates, in line with an anticipated rise in the cost of money due to a new term funding period and a rise in base rates from the government.

Late last week, they also moved their Home Loan Assessment Rate, the criteria by which they judge prospective borrowers, a move widely seen as a tightening up ahead of a rate rise.

“It is an uncertain time and lenders are scrambling to anticipate when the RBA stance will shift,” said Jay Ahluwalia, Home Loan Specialist at YourMortgage. “If we compare our economy with what is happening in the US, we’re doing very well.”

“The US Fed has looked at their situation and raised their rates, so the argument is that the RBA will follow the lead. However, there are RBA mandates that are yet to be met, especially wage growth.”

“On a separate point, the December data on lending is showing an increasing number of people with a debt-to-income ratio greater than 6 has risen by 89%. This will be a concern for the regulators and the banks are anticipating that the rates may rise earlier that indicated to curb this high increase in the level of debt a property owner is carrying.”

“I would say banks will likely follow CBA’s lead and increase their assessment rates. This is an important conversation we are having with clients that may be delaying their decisions.”

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