Commonwealth Bank of Australia (ASX: CBA) shares have slipped 5.6% since the opening bell on 4 May.
The S&P/ASX 200 Index (ASX: XJO) has fared slightly worse, down 6.3% in that same time.
So why are we choosing 4 May as our starting date?
RBA breaks 10-year easing streak
Because that's the date the Reserve Bank of Australia (RBA) bumped interest rates from the historic low 0.1% to 0.25%.
Somewhat astoundingly, that marked the first rate increase from the RBA since November 2010. At that time, the central bank raised the official cash rate by 0.25% to 4.75%, where it would remain for most of 2011.
With inflation roaring back in 2022, the RBA has raised rates now for four consecutive months. Last month's 0.5% hike brought the official cash rate to 1.85%. And analysts are widely predicting another 0.5% rise today, which would bring the rate to 2.35%.
Though with central banker's penchant for round numbers, I expect a 0.65% hike (bringing the rate to 2.5%) isn't out of the question.
Regardless of the size of today's increase, CBA is warning that the RBA could be raising rates too aggressively and not bearing in mind the lag period between raising rates and higher mortgage repayments.
CBA cautions on lagging impact of rate hikes
According to CBA's head of Australian economics Gareth Aird (courtesy of ABC News):
Interest accrues from a lender's effective rate change date, which is typically about two weeks after the RBA increases the cash rate. This interest is added to a borrower's outstanding debt. But from a cash flow perspective the impact is not felt for three months on average for a CBA customer.
This means that the bulk of our borrowers have only felt the impact of one 25-basis-point hike on their cash flow, or potentially, as of this week, the cumulative impact of the May 25-basis-point rate hike and June 50-basis-point rate increase.
Noting the risks to the wider Aussie economy of overshooting the size and pace of rate hikes, Aird added:
It has simply been too early for the spending data to pick up the impact of the already delivered rate hikes. There is a clear risk that the RBA continues to tighten policy aggressively because it appears that demand in the economy is not slowing sufficiently to put the desired downward pressure on inflation.
In due time, Aird said, the impacts of the RBA's rate increases will kick in. "At CBA, for example, by December the impact of already announced rate rises on monthly cash flow for mortgage holders will be a four-fold increase compared to July."
Then there are the mortgage holders on fixed loans, where the lagging impact of rate rises is even longer.
"There is a large proportion of fixed rate home loans that will expire over the next 18 months," Aird said. "This creates natural tightening even with the RBA on hold."
How have CBA shares been tracking longer-term?
While CBA shares have come under some selling pressure this year, they remain up 31% over the past five years. That compares to a 21% gain posted by the ASX 200.
