CBA Rate Hike Sparks Overvaluation Fears Amid Higher Funding Costs
Commonwealth Bank of Australia (ASX:CBA) has increased fixed home loan rates ahead of an expected Reserve Bank of Australia cash rate increase, signaling its preparation for higher funding costs and a longer period of elevated borrowing rates.
This move follows CBA economists bringing forward their forecast for the next RBA hike after higher oil prices and persistent inflation data. The share price has slipped over the past month and quarter to around A$152.33, suggesting some heat has come out of Commonwealth Bank of Australia's rally.
The bank has been busy on the funding side, issuing variable and floating rate notes in US dollar and sterling markets in mid-September, and rolling out a refreshed NetBank platform to millions of users.
CBA is trading well above both analyst targets and one estimate of fair value after its rate move. Is that a premium on quality or a sign the market is ignoring genuine risks? Most Popular Narrative suggests CBA is 22% overvalued, with a fair value of about A$125.21 using a 7.93% discount rate.
However, if Commonwealth Bank of Australia's heavy technology spend starts to deliver faster productivity gains, or if credit volumes stay resilient, the current overvaluation argument could face pressure.