NAB moved to raise a number of its home loan interest rates earlier today
That completes the cycle of the "Big Four" in Australia raising their mortgage rates since last August. Previously, CBA, ANZ, and Westpac have already moved to raise their rates in August and September last year citing the same reason i.e. increase in funding costs.
Some headlines at the time:
- The RBA's ability to raise its cash rate has taken yet another hit
- Australian banks begin to ramp up the pressure on consumers
Taking a look at the borrowing rates now:
There was a bit of a drop in funding costs at around July to August last year but since December the rates have increased once again and this may prompt further action down the road by the "Big Four" to increase their mortgage rates even further.
Why exactly is that bad for the RBA and the Australian dollar?
The simple way of looking at it is that an increase in mortgage rates will add further strain to Australian consumers who are already suffering from high household debt. That will tighten the purse strings of the consumer and drag down spending/consumption patterns, which will weigh on the economy.
Add that together with the fact that the housing market is still softening, your average Australian home buyer is basically paying more for something of declining value. Hence, that will eat more into their net worth/savings and affect their ability to spend.
What that means is that the RBA has more issues to deal with when it comes to the economy and that is going to put more pressure on the central bank to either leave the cash rate unchanged or err towards cutting the cash rate instead in an attempt to alleviate the pressure on consumers.
And as the RBA's woes drag on, that in turn applies pressure on the aussie since markets will be less confident that the central bank will be able to move towards hiking rates in the future.
