The Commonwealth Bank of Australia (ASX: CBA) share price is currently up, slightly. Australia's biggest bank increased its interest rate yet again. That's despite the S&P/ASX 200 Index (ASX: XJO) being down more than 0.10%.
Interest rates are going higher at the big four bank for both owner-occupiers and investors for the fourth time in the last several weeks.
CBA hikes interest rates
For owner-occupiers, CBA's fixed rate increased by 0.05% from 2.49% to 2.54%. The 3-year fixed rate rose 0.15% from 2.99% to 3.14%. The 4-year fixed rate grew 0.25% from 3.09% to 3.34% according to RateCity.
To put into context how much the rates have changed, since 14 October, Rate City notes CBA's 3-year rate has increased by 0.95%, or 95 basis points.
Whilst today's increase is not large, RateCity.com.au research director, Sally Tindall commented that the hikes are adding up:
The spike in the cost of funding has sent fixed rates soaring, with both CBA and Westpac hiking fixed rates four times in the last two months. As a result, CBA's 4-year rate has risen by over a full percentage point in this time.
CBA's fixed rates with terms of three years and more are now higher than pre-pandemic levels.
These fixed rates hikes aren't isolated to the big four banks. The rate rises are coming in across the board from lenders big and small and we expect them to continue.
Anyone in CBA's queue for a fixed rate who didn't pay a rate lock fee will be particularly grumpy at today's news.
How much will borrowers be paying now?
According to RateCity, the average borrower taking out a $500,000, 3-year fixed rate loan with CBA today will be paying $250 more a month than someone who took out the same loan two months ago.
In other words, they'll have to pay a total of $3,000 a year extra, which is a sizeable amount of most Aussie budgets.
Global interest rates are heading higher too
The US Federal Reserve has signalled that it's going to be removing emergency support from the economy even sooner than previously expected.
In the most recent Federal Open Market Committee (FOMC) statement, it was noted that the progress on vaccinations and indicators of economic activity and employment have continued to strengthen. It's expecting further economic activity gains and strong employment, as well as a reduction of inflation.
The Committee decided to reduce the monthly pace of its net asset purchases by US$20 billion for Treasury securities and US$10 billion for agency mortgage-backed securities. COVID-era bond purchases are planned to end in March.
As reported by various media around the world, including Reuters, there could be as many as three rate hike of 0.25% rises by the end of 2022.
The Fed Chair Jerome Powell said:
The economy no longer needs increasing amounts of policy support. In my view, we are making rapid progress toward maximum employment.
CBA share price snapshot
Despite the 10% drop of CBA shares over the last month, it is still up 16% in 2021.
