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CBA increases interest rates again – what does this mean?

Australia’s biggest bank, Commonwealth Bank of Australia (ASX: CBA), has decided to increase interest rates again. That’s the third increase in just six weeks.

According to Ratecity, CBA has increased its owner-occupier fixed rates by up to 0.30%, while investor fixed rates rose by up to 0.60%.

What are the rate changes?

For owner occupiers paying principal and interest, the 1-year fixed rate has increased by another 0.15% to 2.49%, the 2-year went up 0.25% and the 3-year rose 0.30%.

Why did CBA increase its interest rate?

RateCity.com.au research director, Sally Tindall had these comments about the latest change:

“CBA has once again bowed to funding pressures which have soared in recent weeks.”

“Customers waiting in CBA’s queue to have their loan approved who didn’t lock in their rate will be cursing themselves this morning, particularly as CBA has one of the cheapest rate lock fees available.” 

“It’s raining rate hikes and the storm is nowhere near over. The flood of fixed rate hikes is likely to keep going as the cost of fixed-term funding continues to rise.

“The number of fixed rates under 2% is dropping rapidly. Six months ago, there were 161 fixed rates under 2 per cent. Today there are just 87 and we expect this number to keep plummeting.”

What could this mean?

I might guess that there are going to be further interest rate rises from banks like Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) as well as many of the other smaller ones.

This may mean it’s a bit more expensive to buy a house. The growth of house prices was already slowing, but this could push on the brakes even more.

Higher interest rates isn’t good news for borrowers and it may cause a bit of certainty for some property-related ASX shares.

CBA may be able to increase its net interest margin (NIM) with these increases, but I’m not sure what’s going to happen next. More volatility could be a good thing for the ASX share market. I’m going to keep my eye out for opportunities.

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