In a sign that interest rate cuts may occur in late 2023, Commonwealth Bank has recently reduced its fixed mortgage rates by 40 basis points. The bank’s three-year fixed rate for owner-occupiers who are paying off principal and interest has been lowered to 5.59%, a reduction of 0.4 percentage points from 5.99%. This fixed rate is cheaper than the Commonwealth Bank’s 5.64% variable rate for borrowers with a 20% mortgage deposit and is currently the lowest three-year rate among the big four banks in Australia.
The banks usually establish their fixed-rate mortgages based on their projections regarding interest rates.
According to the Commonwealth Bank, the Reserve Bank of Australia is expected to increase rates one more time to 3.85%. It is surpassing the current 11-year high of 3.6%. However, Gareth Aird, the head of Australian economics at CBA, anticipates two rate cuts in late 2023, followed by two more rate cuts in early 2024, resulting in a reduction of the cash rate to 2.85%.
Sally Tindall, the research director of RateCity, expressed her belief that the other significant banks would soon begin reducing their fixed rates. This prediction is based on the assumption that the Reserve Bank has concluded its rate hikes.
According to Sally Tindall, research director at RateCity, smaller lenders are still leading the charge in offering competitive fixed rates, although the big four banks are beginning to follow suit as they expect the cash rate to peak soon. She noted that while most of the fixed rate changes made by the big four banks this year have been increases, the trend is changing.
The Commonwealth Bank recently reduced its three-year fixed rate to 5.59%, which is lower than the variable rate of 5.64% offered by the bank. However, smaller lenders such as The Capricornian credit union are still offering better deals, with a 4.99% fixed rate for three years. Macquarie Bank is also offering a competitive rate of 5.35% for five years.
Westpac has a one-year fixed rate of 5.54%, while ANZ’s offer for the same period is 5.99%. Westpac expects one more rate hike in May, while ANZ predicts it will occur in August. Although NAB is the only major bank forecasting the end of Reserve Bank rate hikes, its fixed rates for one to five years all start with a “six.”
Conclusion
In April, the Reserve Bank of Australia held interest rates steady for the first time in a year after 10 consecutive monthly increases. But the minutes from the meeting indicated that a rate hike was still being considered for this month. The minutes noted that the case for a 25 basis point increase in the cash rate target was based on the observation that inflation remained too high and the labor market was very tight.
The 30-day interbank cash futures market is now predicting rate cuts in June 2024. They have recently priced in cuts starting in mid-2023. Inflation reached a 32-year high of 7.8% in 2022. While the monthly figure for February eased to 6.8%, headline inflation remains well above the RBA’s target range of 2 to 3%. Unemployment remained at a 48-year low of 3.5% in March.
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