RBA Rate Hike Expected in September: What it Means for Australia's Big Banks

The Reserve Bank of Australia (RBA) is expected to raise interest rates again in September, with a 95% probability of a 25-basis-point hike to 4.60%. This would be the sixth rate increase since February, with Governor Michele Bullock warning that inflation risks are materializing due to high energy prices and persistent domestic demand.

The big four Australian banks - Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac, and ANZ - will face different pressures from this decision. Higher interest rates can lift net interest margins, but also increase mortgage repayments and weaken housing turnover.

CBA's home loans grew 7% in the first half of the year, with a substantial exposure to any improvement in lending margins after another RBA increase. However, intense competition for deposits and funding costs reduced its overall net interest margin by one basis point.

NAB's large business-banking operation reduces its dependence on residential mortgages, but creates both an opportunity and a risk. Higher lending rates can support returns on business loans, but companies facing rising energy, wage, and financing costs may delay investment or reduce demand for new credit.