Fixed Rates Rise
Major banks lift fixed mortgage rates as the Reserve Bank weighs further rate hikes.
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Key Points
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The pandemic response included cutting the cash rate to 0.25% in 2020, launching billions of dollars in government-bond purchases through the Large Scale Asset Purchases programme and introducing a funding-for-lending programme.
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The review modelled three alternative policy paths and concluded that an earlier, gradual increase in the cash rate—identified as scenario 3—would have produced a better outcome than the delayed tightening that occurred.
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Governor Michele Bullock distinguished between mortgage costs and economy-wide inflation, saying higher repayments can worsen the cost-of-living burden for indebted households but do not themselves constitute broad inflation; she also noted that slowing inflation does not reverse already higher prices.
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The RBA’s August projections indicated inflation would not return to the midpoint of its 2%–3% target range until late 2027, with risks still tilted toward additional price pressure.
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Canstar estimated that a borrower with a $600,000 mortgage and 25 years remaining could save about $776 in interest over the following year by choosing the lowest one-year fixed rate rather than the lowest variable rate, although the estimate assumes a particular sequence of rate rises and later cuts and excludes fees and extra repayments.
Australia's major banks are raising fixed mortgage rates ahead of an expected Reserve Bank interest rate hike. Commonwealth Bank lifted rates by as much as 0.48 percentage points for new customers, with the lowest fixed rates at the big four banks now around 6.49%. Perth Now reports that a review of the RBA's pandemic response found emergency stimulus stayed in place too long, fueling inflation and keeping real interest rates historically low.
The RBA is widely expected to raise its cash rate by 25 basis points at its next meeting as inflation remains stubbornly high. Governor Michele Bullock warned that supply shocks must not become embedded in broader prices. The central bank's August projections show inflation won't return to its 2%-3% target until late 2027, with risks still pointing toward more price pressure ahead.
Pandemic Emergency Stimulus Stayed Too Long
A formal review found that cutting the cash rate to 0.25% in 2020 and launching billions in government bond purchases were appropriate at first. But Perth Now notes the stimulus programs remained in place well beyond when the economy had recovered. Policymakers discounted positive economic data and underplayed inflation risks while distracted by the bank's employment mandate.
The review modeled three alternative policy paths. Scenario 3—an earlier, gradual rate increase—would have produced better outcomes than the delayed tightening that actually occurred. Finance Minister Nicola Willis argued the central bank was too slow withdrawing support, allowing inflation to build momentum that now proves hard to contain.
Banks Lock In Rate Rises Before Next RBA Decision
Commonwealth Bank's 0.48 percentage point increase signals banks expect the RBA to raise rates soon. Other major banks have made smaller increases, but all four big lenders now offer their lowest fixed rates around 6.49%. Glen Innes Examiner reports some smaller lenders still offer rates below 6%, giving borrowers options if they shop around quickly.
A borrower with a $600,000 mortgage and 25 years remaining could save about $776 in interest over one year by locking a fixed rate rather than staying variable. However, this estimate assumes specific rate movements and excludes fees. The savings calculation depends entirely on whether the RBA's rate path matches what financial markets currently expect.
RBA Distinguishes Between Mortgage Costs and Broad Inflation
Governor Michele Bullock explained that higher mortgage repayments worsen cost-of-living burdens for indebted households but don't constitute broad inflation themselves. Blayney Chronicle notes the distinction matters because rate hikes target economy-wide price pressures, not individual borrower pain. Slowing inflation also doesn't reverse prices that have already risen—groceries won't get cheaper just because inflation stops accelerating.
The RBA faces a difficult balancing act. Queanbeyan Age reports analysts warn that inflation becomes harder to control once everyday items like books, coffee, and haircuts all cost more. This broad-based price growth suggests the central bank must continue tightening even as households face mounting mortgage stress from previous rate rises.
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