RBA delivers 0.50% rate hike in June: Has your bank increased home loan rates?

One month after it began unwinding its pandemic-era interest rate cuts, the Reserve Bank of Australia is flooring the accelerator, this time lifting rates by 50 basis points to 0.85%.

The move finally returns interest rates to their pre-pandemic levels, suggesting that in the eyes of the central bank, the worst of the economic crisis is behind us.

The Board’s main challenge now is addressing the worrying levels of inflation currently bearing down on the economy, with RBA Governor Philip Lowe alluding to further rate hikes down the pike.

“Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation,” he said.

“But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market pressure on prices. The floods earlier this year have also affected some prices.

“The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.”

Core inflation, which smooths out one-off and seasonal price swings, rose to 3.7 in the first quarter of 2022 — well above the RBA’s target range of 2-3%. 

The next round of economic data won’t be available until July, but Treasurer Jim Chalmers has said that rising food and petrol prices will likely push inflation past the 4.25% initially forecast by the Coalition government.

While the Board is aware that raising rates too sharply could dampen consumer confidence — not to mention trigger a sharp sell-off of stocks and other assets — appearing idle in the face of surging prices comes with its own set of risks.

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In a recent research note, Westpac chief economist Bill Evans said the RBA has been slow to acknowledge Australia’s “formidable inflation challenge,” and needs to be more decisive if it wants to keep inflationary expectations in check.

“Larger increases at the early stages of the tightening are good policy,” Evans said.

“Better to move decisively in the early stages of the cycle when it is clear rates are well below neutral than later in the cycle when there is a risk that policy moves too quickly into contractionary territory.”

Within a day of the RBA’s decision last month, all four major banks announced that they would be lifting variable home loan rates in line with the cash rate. 

The rest of the market largely followed suit. Of the 95 lenders we track, 77 passed on May’s rate rise to their customers in full, 12 have raised rates only partially, and the remaining six have yet to announce any changes. 

Mozo’s banking expert Peter Marshall said that with fixed rates having returned to their pre-pandemic levels, borrowers looking to safeguard their finances have only a few tried and true options available to them.

RELATED: RBA interest rate tracker - What does an increase mean for your home loan?

“If you do have extra funds, even for a short period, an offset account is worthwhile. Every bit you have in there, for as long as you can have it there, makes a difference,” he said.

“While rates are still quite low, use this time to repay as much of your loan’s principal as you can, because everything that you can pay down now will save you interest every month in the future.”

Refinancing should also be on borrowers’ minds. Right now, the average variable rate among lenders we track sits at 3.23% p.a. (P&I, OO), but we count ten lenders with rates a full percentage point lower.

Unfortunately for those looking to get a foot on the property market, higher interest rates add to a growing list of hurdles. Already, banks are reassessing their lending standards in light of the changing interest rate environment.

ANZ recently revealed it will only be issuing loans to borrowers with a debt-to-income (DTI) ratio below 7.5. NAB also lowered its DTI limits from nine to eight, but will not rule out lending to borrowers who do not meet this criteria so long as they are creditworthy.  

We’ll be keeping track of how banks respond to the RBA’s decision as word comes in. For more information, visit our RBA rate tracker page or our home loan comparison page.

How have banks responded to the RBA’s June rate hike?