One RBA hike to go but banks have different plans
Most economists from all the big banks share the same sentiment – one more interest rate rise to go and then we’re done! While there are risks still apparent, this is the shared view, given the fact that Australian wages and jobs figures released during the week, were roughly in line with expectations of the Reserve Bank of Australia (RBA). Even if this is true, and we don’t see a rate rise in December, but a final rate rise in 2024, there’s another risk for us existing or future borrowers. The banks may all need to lift interest rates anyway, beyond the RBA’s potential increase. The price war amongst all the lenders has eroded margins and eaten into profitability and now they need to claw some of this back – is the narrative from the big banks.
Interest rate discounts are not sustainable - bank’s losing money
As we alluded to in last month’s update, negotiations for special interest rate discounts have seen results not as favourable for our borrowers in recent months. We’ve seen the banks pull back and not offer the same super competitive rates or discounts.
During the week, ANZ and CBA made public their pressures around profitability. We saw CBA’s CEO Matt Comyn accuse ANZ of undercutting the market, offering unsustainably cheap interest rates. ANZ’s CEO Shane Elliot basically declared that the bank hasn’t done this but did also admit that their margins are under pressure.
CBA haven’t been offering the cheapest interest rates for a long time, given their business decision to not give away too much margin and this has been detrimental to their market share. ANZ on the flipside, has been aggressively offering sharp rates to mostly new customers, in an attempt to gain market share and it’s worked for them but it’s really eating into their profitability.
Out-of-cycle rate hikes
The problem is that profit margins are not just affecting ANZ, or CBA, but all the lenders and unfortunately, despite the high cost of living for all borrowers, the banks will favour their shareholders. So, we could see more out of cycle rate hikes from the banks to balance out their margins.
AMP, not the first and definitely not the last lender to do this, on Friday 17 November 2023, made clear their need to raise rates outside of the RBA’s most recent cash rate rise, as it tries to solve for its shrinking profit margins on home loans.
We will be watching closely all the 1st and 2nd tier lenders who most of our loans are with but equally, those 3rd tier lenders over the next few months. Not what we need when we’re already dealing with the increased cost of living.
The RBA is just about done – economic impacts
The RBA, as we know, on Melbourne cup day raised rates by 25 basis points and economists believe we’ve not seen enough data yet to support another rate rise this year. The opinion of these experts is that the risks are skewed towards further action being required in 2024.
According to the Australian Bureau of Statistics, Australian jobs for October 2023 as a whole, were up and this was most likely spurred by referendum workers who temporarily worked on the Voice campaign. Unemployment for the month was at 3.7 per cent and in line with what the RBA forecast and not a concern for them, it appears. If upcoming retail sales and inflation data (out on 29 November 2023) are stronger than expected, and productivity remains weak, we could see another rate rise but it’s not expected by economists.
See here ANZ’s forecasts as of last week showing all their predictions on what will happen to all the lead indicators and the RBA's cash rate:
While the lenders manage their numbers and work out what to do with their existing and new customers on rates, the data and the predictions are that the central bank, our RBA, is just about done with hikes and this is the sentiment shared by most economists. Economic data out of the US & UK for this month, has been supportive of this same view, and inflation globally, while still present, seems to be cooling.
Final thoughts
For how long inflation sticks with us remains the major concern for the RBA and when you add the cost of funds and profit margin pressures that the banks are facing, it’s not necessarily good news for borrowers. It’s broadly believed that the RBA will look to pause next month, and then reassess in February when they reconvene, given they take a break in January. Next week we will see the minutes from the RBA’s meeting and hear a speech from the RBA Governor Michelle Bullock which be delivered in a very careful manner and watched closely by us all.
We will continue to stay close to all of this and continue to ensure your lending solution is in your best interests to tackle this challenging period.
Enjoy your Sunday & the rest of your weekend.
If you want to know more about the different rates, terms, or bank specials on offer at the moment or just have a general question, please send a note to peter@blackandwhitefinance.com.au or click the start today button a little lower. With the help of our amazing Mortgage Broker Sydney – Black and White Finance team, we will be able to support you.
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