The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is tumbling on Wednesday.
In afternoon trade, the banking giant’s shares are down 2.5% to a 52-week low of $23.85.
Why is the ANZ share price tumbling?
Investors have been selling down the ANZ share price today amid broad weakness in the banking sector.
This has seen all the big four and challenger banks drop into the red today despite the market rebounding from yesterday’s selloff.
The weakness in the banking sector has been caused by concerns over the Reserve Bank’s greater than expected rate hike on Tuesday and its future plans.
But aren’t rate hikes good news?
While increasing rates are seen as a positive for the banks and their net interest margins, it is the pace of the hikes that has investors concerned.
The market was previously expecting a gradual and measured tightening cycle from the central bank. However, it now looks likely to undertake an aggressive stance, which could create challenges for the banking sector.
Morgans believes the Reserve Bank could take the cash rate as higher as 2.6% by the end of the year if it follows the US Federal Reserve’s lead. A sharp contrast to where it started 2022.
[T]he RBA will likely move in 50bps increments consistent with upcoming Fed decisions. This will see the RBA increase the cash rate to 135 basis points in July, and on current market pricing take the cash rate to 260 basis points by year-end.
As for the impact on the big four banks, Morgans summarised:
Although a rising official cash rate will benefit bank Net Interest Margins (NIM). Higher interest rates will likely place downward pressure on asset prices and credit growth. Higher interest rates will increase the risk of asset quality deterioration. Rising risk-free rates will place upward pressure on the cost of equity. From a dividend yield perspective, we expect downward pressure on valuations as we expect dividend yields to become less attractive relative to rising risk-free rates.