What’s an out-of-cycle rate hike? And who should care?


Over the next couple of years, you can expect to hear a lot about out-of-cycle rate hikes. This means banks decide to raise rates even when the RBA hasn’t, hence, out-of-cycle.

Right now, interest rates in most countries are rising, so when our banks borrow money overseas, they pay a higher rate of interest and pass on the cost to mortgage holders. The bank bill swap rate (BBSW), the short-term lending rate our banks are charged by overseas banks, is 2.0%. That’s 0.25% higher than the RBA’s 1.5% cash rate. In other words, international funding costs have gone up. And that’s precisely how the banks justify out-of-cycle rate increases.

Smaller lenders such as Adelaide Bank, Bendigo Bank, BOQ, raised rates a while back but the Big 4 initially wore the cost for fear of a community backlash (what with the Royal Commission and all). Throwing caution to the wind, they’ve since followed suit, and the standard variable rate for an owner-occupier principal and interest loan at three of the big four banks is now 5.37%. NAB is a tad lower at 5.24%. And there’s more of the same to come, according to Credit Suisse, which is predicting another 0.5% worth of out-of-cycle rate rises over the next while.

As for the RBA, well it ain’t budging, and probably won’t in the short term. Strange times, perhaps encapsulated by this little gem we found from Hemingway in The Sun Also Rises. 

‘How did you go bankrupt?’ 

‘Two ways. Gradually, then suddenly.’ 

Get in touch with me about how this rate hike will impact your clients. I can also take a look at their loan and see if there’s a more competitive deal out there.