Despite the RBA leaving interest rates unchanged at its last meeting, Aussie banks are quietly upping fixed interest rates. But why?

What's happening?

Westpac was identified as raising some of its one, three and five year fixed rates this week. Some of them by up to 0.35%.

Whereas one used to be able to score a rate that started with 4 on a Westpac two-year fixed mortgage this time last week, this week it's a different story. Now the lowest fixed rate on offer from Westpac is 5.24% on one- and two-year terms. The highest fixed rate looks to still be the four- and five-year options at 5.59%.

But those with their finger - nay, a whole monitoring suite - on the pulse of local banks noticed that this wasn't an isolated move.

Canstar has identified that a total of nine local banks have all quietly put up their fixed rates in a similar fashion over the last month. Canstar spokesperson Laine Gordon said:

"Canstar tracking shows nine lenders, including the Westpac Group, have hiked at least one fixed rate in the past two months and they are unlikely to be the last."

But the Reserve Bank held rates at its last two meetings in a bid to deal with higher than expected inflation and a wait-and-see labour market, right? So why are so many banks pointing north right now?

Understanding the 'why' tells us a little bit more about our financial future over the next 12 months.

Why banks are lifting rates now

While variable rates depend on the RBA's hawkish mood, fixed rates are a different beast. Rather than being tied to the RBA's overnight rates, fixed lending costs are funded from international interests such as global bond markets. And the cost of that lending has increased for banks.

Three- to five-year bond yields have recently risen as investors price in a return to persistent inflation. When funding becomes more expensive, banks lift fixed rates to keep their margins intact.

The recent jump suggests that traders see the RBA’s long pause as less comfortable than it looks. Inflation may have ducked back into the target band over recent months, but the data behind it has proven slow to settle. Services prices, wages pressure and rent growth remain stubborn. Markets now see a higher chance that the RBA’s next move is up rather than down, even if that move is many months away.

Taken together, rising fixed rates and sticky inflation are a sign that financial conditions may stay tight well into next year. The RBA has said it does not expect to cut until it is confident inflation will stay inside the band. If that confidence wavers, the timeline stretches. Bond markets are pricing in a world where rate cuts arrive later and move more cautiously.

For borrowers, it means that cheap fixed rates are quickly evaporating. Canstar's Laine Gordon adds that of the over 40 lenders it tracks, only one offers a rate below 5% today. 

The fixed market is officially pricing in a tricky 12 months for local and global markets.