NAB becomes first bank to pass on Reserve Bank’s November rate increase of 0.25 percentage points


NAB has become the first major bank to announce an increase in its variable mortgage rates in the wake of the Reserve Bank’s Melbourne Cup day hike.

Australian borrowers on Tuesday copped a record seventh consecutive monthly interest rate rise as the Reserve Bank of Australia battles to tackle the worst inflation in 32 years. 

The RBA announced the latest 0.25 percentage point increase this afternoon. Each of the Big Four banks correctly betted on a November 1 rise.

Borrowers have endured rate rises every month since May and the cash rate is now at nine-year high of 2.85 per cent.

NAB has become the first major bank to announce an increase in its variable mortgage rates to match the Reserve Bank’s Melbourne Cup increase (pictured are National Australia Bank headquarters in Sydney)

NAB has declared it would pass on the 25 basis point increase from November 11.

This would see its comparison variable rate rise to 4.78 per cent from 4.53 per cent for those with a 20 per cent deposit paying off principal and interest.

NAB Group’s executive for personal banking Rachel Slade urged worried borrowers to get help.

‘Regardless of who you bank with, I encourage people to speak to their bank early if they are concerned,’ she said.

The RBA predicts inflation will now hit a new 32-year high of 8 per cent this year, up from a previous forecast of 7.75 per cent. 

Governor Philip Lowe declared inflation is still too high. 

Australian borrowers have copped a seventh consecutive monthly interest rate rise to cope with the worst inflation in 32 years

Australian borrowers have copped a seventh consecutive monthly interest rate rise to cope with the worst inflation in 32 years

The Reserve Bank is now expecting inflation to remain above its target until 2024, after moderating to 4.75 per cent in 2023. 

Petrol prices during the past year have soared by 18 per cent, even though the fuel excise was halved to 22.1 cents a litre for six months until late September.

Fruit and vegetable prices have climbed by 16.2 per cent while housing costs have risen by 10.5 per cent with rental vacancy rates particularly tight. 

Dr Lowe stressed tackling inflation was his key priority, after last year promising no rate rise until 2024 ‘at the earliest’. 

‘As is the case in most countries, inflation in Australia is too high,’ he said.

‘Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role.

Borrowers have endured a rate increase on the first Tuesday of each month since May and the cash rate is now at nine-year high of 2.85 per cent (pictured at an auction at Glen Iris in Melbourne)

Borrowers have endured a rate increase on the first Tuesday of each month since May and the cash rate is now at nine-year high of 2.85 per cent (pictured at an auction at Glen Iris in Melbourne)

Inflation in the year to September surged by 7.3 per cent - the fastest pace since 1990. The RBA has revised its forecasts to have inflation hitting a new 32-year high of 8 per cent this year, up from a previous forecast of 7.75 per cent

Inflation in the year to September surged by 7.3 per cent – the fastest pace since 1990. The RBA has revised its forecasts to have inflation hitting a new 32-year high of 8 per cent this year, up from a previous forecast of 7.75 per cent

‘Returning inflation to target requires a more sustainable balance between demand and supply.

What a 0.25 percentage point rate rise in November would mean

$500,000: Up $75 to $2,621 from $2,546

$600,000: Up $90 to $3,145 from $3,055

$700,000: Up $105 to $3,669 from $3,564

$800,000: Up $120 to $4,193 from $4,073

$900,000: Up $135 to $4,717 from $4,582

$1,000,000: Up $150 to $5,241 from $5,091

Monthly repayment increases based on a Commonwealth Bank variable loan rising to 4.79 per cent from 4.54 per cent to reflect Reserve Bank of Australia cash rate rising to 2.85 per cent from 2.6 per cent

‘The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.’

The latest quarter of a percentage point rate rise would add $90 to monthly repayments for an average $600,000 mortgage.

This borrower will soon be paying $3,145 a month, up from $3,055 now.

As recently as early May, a typical loan had monthly repayments of $2,306 but the latest increase means a borrower will now be paying $839 more a month. 

The pace of monetary policy tightening of 2.75 percentage points over six months is equal to the level of tightening over four months in late 1994.

Another increase in December, as expected by the big banks, would see borrowers suffering the steepest level of rate increases in a calendar year since 1990.

This would also mean borrowers in 2022 would have copped a three percentage point increase in rates – the stress threshold lenders are required to assess before approving a loan. 

The RBA statement noted ‘the board recognises that monetary policy operates with a lag and that the full effect of the increase in interest rates is yet to be felt in mortgage payments’.

KPMG chief economist Brendan Rynne said that explained why the Reserve Bank opted for a 25 basis point rate rise instead of a larger 50 basis point move – like June, July, August and September.

Inflation in the year to September surged by 7.3 per cent - the steepest increase since 1990. The Reserve Bank is now expecting inflation to remain above its 2 to 3 per cent cent target until 2024, after moderating to 4.75 per cent in 2023 (pictured is a Coles supermarket in Sydney)

Inflation in the year to September surged by 7.3 per cent – the steepest increase since 1990. The Reserve Bank is now expecting inflation to remain above its 2 to 3 per cent cent target until 2024, after moderating to 4.75 per cent in 2023 (pictured is a Coles supermarket in Sydney)

‘It was an each-way bet as to whether the board would return to a “double-jump” increase – 50 basis points – given the above expectation rise in CPI that was printed last week,’ he said.

What the banks expected in November and for 2023

WESTPAC: A 0.5 percentage point increase in November with cash rate peaking at 3.85 per cent in March 2023

ANZ: A 0.25 percentage point increase in November (outside chance of a 0.5 percentage point rise) with cash rate peaking at 3.85 per cent in May 2023

COMMONWEALTH: A 0.25 percentage point increase in November with cash rate peaking at 3.1 per cent in December 2022

NAB: A 0.25 percentage point increase in November (outside chance of a 0.5 percentage point rise) with cash rate peaking at 3.6 per cent in March 2023

 

Commonwealth Bank variable rates, for borrowers with a 20 per cent deposit, have since May risen from 2.29 per cent to a new level of 4.79 per cent when the latest 25 basis point increase is passed on.

The Commonwealth Bank, Australia’s biggest home lender, is expecting a December rate rise to be the last in this cycle, taking the cash rate to a new 10-year high of 3.1 per cent.

Westpac is expecting a 3.85 per cent cash rate by March 2023 while ANZ is forecasting that will happen in May next year. 

NAB is forecasting a 3.6 per cent cash rate by March.

The futures market is expecting a 3.9 per cent cash rate by July next year. 

Australian workers are continuing to suffer from weak wages growth despite unemployment in September falling to a near 48-year low of 3.5 per cent. 

Wages in the year to June grew by just 2.6 per cent, when inflation was still at 6.1 per cent, which means most Australian workers are effectively suffering a cut in real wages.

But Dr Lowe is expecting higher inflation to flow through to wages in the coming year.

‘A further pick-up is expected due to the tight labour market and higher inflation,’ he said.

‘Given the importance of avoiding a prices-wages spiral, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.’

The futures market is expecting a 3.9 per cent cash rate by July next year

The futures market is expecting a 3.9 per cent cash rate by July next year

ANZ head of Australian economics David Plank said the RBA would continue raising rates by 25 basis points unless there was evidence of higher wages feeding inflation. 

‘It will be very difficult for the RBA to return to 50 basis point rate hikes unless clear evidence of a price-wage spiral emerges,’ he said.

The Reserve Bank acknowledged it would be difficult to keep the economy ‘on an even keel’.

‘The path to achieving this balance remains a narrow one and it is clouded in uncertainty,’ it said.

Reserve Bank of Australia Governor Philip Lowe (pictured) said he was 'resolute' in his determination to tame inflation, which is now expected to remain above the RBA's two to three per cent target into 2024

Reserve Bank of Australia Governor Philip Lowe (pictured) said he was ‘resolute’ in his determination to tame inflation, which is now expected to remain above the RBA’s two to three per cent target into 2024

‘One source of uncertainty is the outlook for the global economy, which has deteriorated over recent months. 

‘Another is how household spending in Australia responds to the tighter financial conditions.’

Dr Lowe said he expected unemployment to rise above four per cent in 2024 ‘as economic growth slows’. 

The Commonwealth Bank’s head of Australian economics Gareth Aird said the RBA would aim to stop the jobless rate rising much above 4 per cent – a level last seen in February.

‘This is Plan A. We believe that pursuing Plan A is the right objective,’ he said.

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