CBA Warns of Mortgage Delays as Reserve Bank Prepares for Another Huge Interest Rate Hike

The Commonwealth Bank is warning of the risk that a three-month mortgage delay poses to the economy if the Reserve Bank continues to aggressively raise interest rates.

The RBA has already raised interest rates for four months in a row, quickly bringing its official cash rate target from a record low of 0.1 percent to 1.85 percent.

It is later expected to raise rates yet again, with most analysts and traders expecting another half percentage point hike to take the cash rate to 2.35 percent, the highest since early 2015.

But most borrowers are barely feeling the effects of the first two rate hikes, according to Commonwealth Bank head of Australian economics Gareth Aird.

“Interest accrues from a lender’s effective rate change date, which is typically about two weeks after the RBA raises the effective rate,” he said.

“This interest is added to the borrower’s outstanding debt. But from a cash flow perspective, the impact is not felt for three months on average for a CBA client.

It typically takes about three months for a cash rate increase to manifest in higher minimum monthly payments.
CBA says it typically takes about three months for a cash rate increase to show up in higher minimum monthly payments for its clients.(Supplied: CBA)

“Delays between other lenders vary, but we estimate that, on average, the delay is around two to three months among major lenders.”

Aird said that means most adjustable-rate mortgage customers have only seen their minimum payments adjusted to reflect the RBA’s first two rate hikes, and not yet the percentage point hikes made in July and August.

.DO NOT PUBLISH Rachel Pupazzoni Image Template
CBA Australian economics chief Gareth Aird warns the RBA could raise rates more aggressively than necessary.(ABC News: John Gunn)

“This means that most of our borrowers have only felt the impact of a 25 basis point increase in their cash flow (or potentially, as of this week, the cumulative impact of the May 25 and June 25 rate hikes). rate increase of 50 basis points).”

RBA ‘clear risk’ ‘flying blind’

So it’s no surprise that the full effect of the rate hikes the RBA has already delivered are yet to be felt at cash registers across the country.

Retail sales reached an all-time high of $34.7 billion in July, up 1.3% from the previous month and 16.5% from a year earlier.

Olivia Cummings, director of jewelery company Cleopatra’s Bling in Melbourne, said trading conditions were unpredictable but generally strong.

A businesswoman in her mid-thirties stands in her jewelry store and looks at the camera, arms crossed.
Olivia Cummings, director of jewelry company Cleopatra’s Bling, says adding too much additional stress to consumers “doesn’t seem logical.”(ABC News: Sean Warren )

“We’re doing pretty well considering the general stress people are experiencing with the rising cost of living,” he told The Business.

“People are inclined to get custom gold pieces, because I think you associate gold as a long-term investment, something that won’t lose value.”

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