Are interest rates on the rise again?

The Reserve Bank of Australia has this week left the official cash rate unchanged at an historically low 1.5 per cent.

But US Federal Reserve chair Janet Yellen has signalled that US rates could increase sooner rather than later.

Some Australian analysts are tipping that an American rate rise could occur this month and  Australian borrowers should be prepared.

Is a rate rise warranted in Australia? Would it stifle already subdued consumer spending or will it help people, such as seniors, who have bank term deposits?

Comments   34 Comments

Banks borrow money overseas when the deposit funds they manage are insufficient to meet their projected loan book.
Obviously if the cost of these funds borrowed increases, their profit margins would be squeezed. So to protect their inflated salaries, and ensure they receive their self-designed bonuses, bank directors will increase their loan interest rates. This maintains profit margins and shareholder returns, hence their own financial security. That is human nature, looking after your own interests and to hell with the interests of borrowers.
Note that the announced increases are independent of the RBA decision to maintain rates at the record low levels. But you can be sure another increase will occur as soon as the RBA jacks the rates. Does anyone else think that it is strange that the big 4 banks all announced increases within hours of each other, and they say there is no cartel operating!

I think that anyone who challenges the integrity of the RBA should provide at least some evidence. The RBA has the function of managing the supply of money and does so independent of the government, and our RBA does it well.
In this instance, the RBA quite rightly accuses the government of sitting on it's hands while the economy goes South in a big way. The RBA did everything in it's powers to stimulate the economy with rates going to a record low, but the government spending increased, along with the deficit and our debt. The RBA had every right to call out the government for it's economic incompetence.
To suggest that the RBA "plays a blame game" is totally untrue. It is so easy to make a baseless accusation like this, but without any evidence, all it does is display the naivity of the writer in matters relating to banks. No wonder she is accused of being a bank conspiracy theorist.

Is a rate rise warranted in Australia? That was the question!
Maggie H - my political affiliation is not relevant to the debate.Banks are big businesses and exist for shareholders. They pay their taxes as good corporate citizens.I made the decision to invest my superannuation in financial institutions rather than to receive a pittance from fixed deposits.A choice that every pensioner can exercise.
Lorikeet - banks are well funded in Australia and must keep a substantial amount with the Reserve Bank to precisely prevent an event such as Barings 20 years ago.Basel III is a set of international banking regulations developed by the Bank for International Settlements in order to promote stability in the international financial system.
Buying a home at cheap rate is not an entitlement - just keep saving. Another choice for the general public. Or 24 October 1917 again??? Viva la revolutzione.

It is also important to remember that the Reserve Bank of Australia is a government body. The RBA can play a "blame game" with the government any time it chooses, with useful effect.

I am well aware of the existence of several different types of bank account in place for different purposes. This is not rocket science.

I agree with a very astute person on Q&A who suggested that those accusing others of offering "alternative facts" are simply trying to discredit them and prevent others from paying attention to their opinions. There was also an interesting discussion of people only listening to commentators who support beliefs that served their own purposes, and the question as to whether anyone is telling the truth.

Would I be correct in assuming that Eureka believes that every time the major banks find themselves with a liquidity problem, they should raise mortgage rates? If so, eventually the housing market would become depressed due to lack of borrowers. Then what? Will Eureka pay his workers more so they can still afford to buy a home? Or will he insist on greater parasitisation of bank account holders?

Big four banks lift Australian share market
AAP .17 March 2017
The major banks have driven the Australian share market higher after two of the big four increased their variable mortgage rates for investors and owner occupiers.
The benchmark S&P/ASX200 finished 0.24 per cent higher at 5,799.6 points.
Paterson’s Securities economist Tony Farnham said the financial sector, in particular the big four banks, have bounced from Thursday's falls.
"There was a bit of value to be found today after the big four banks had a sell down on Thursday," Mr Farnham said.
"The major story driving them higher is that the National Australia Bank and Westpac have both increased their variable interest rates and it is inevitable that the other two will do the same."
He said the banks were lifting rates in anticipation their borrowing costs from overseas will increase further after the US Federal Reserve hiked its cash rate by 0.25 percentage points on Thursday, Australian time.

I dispute that taxing the rich would still result in a budget deficit. The government would be rolling in money and also paying off part of Australia's huge foreign debt. However that would require the government to become pro-Australia and ignore global interests.

I don't believe the CPI has ever been an accurate reflection of the status quo, but I agree with Bob B. that it has become much worse in very recent years.

I agree with a television commentator who recently said that Australian banks are taking big risks in borrowing funds from overseas. When people move their money out of Australian banks and put them into the global superannuation arena, they are risking the Australian economy and its banking system.

Eureka might be wise to consider how much shareholders will receive if one or more of our Big 4 banks goes into liquidation.

Eureka 17.03.17 says my comments about the incompetence of the Treasurer and government are naive and shallow. Well, Eureka, it was the RBA Chairman who castigated the government for their monetary policies, forcing the RBA to slash rates.
I realise that as a Liberal, you need to support your party. But as a fellow Liberal, I just cannot support this current shambles. When deficits are blowing out alarmingly, the only cuts they are making is to pensions, health and education.
At the same time, we continue to borrow billions each year to subsidise the wealth of high income earners. Also large companies are avoiding tax by exporting their profits to tax havens. $20b plus could be saved if big business and high wealth taxpayers paid their fair share.
Your accusation shows your political allegiance triumphs over economic facts. BTW, I agree with you about earning more as a shareholder than as a depositor.

Anonymous explanation of interest (income) and growth is spot on.

In simple terms most re-invest interest earned in a bank account as a natural action that causes the growth and make deposits and take withdrawals using it as a working account. Today, many such user account earn no interest and it's a challenge to find the one with minimal charges. Other folk have separate bank accounts as growth options with usually higher interest rates under certain conditions that cause one to keep adding to the account on a regular basis and gives ready access to those funds. With other forms of investment the use of earnings is usually taken as a much more considered decision depending on objectives and one's current situation. Those 'in the know' invest appropriate to their situation usually with consequential growth.

Lorikeet, you claim growth isn't growth when overtaken by inflation. I know what you are trying to say as well as the jumbled logic you actually said. It's a pity we don't have a term for this backward rolling of the value of a bank account earning interest that is less than the impact of inflation.

You also raise the very valid point that our CPI is no longer a measure of actual inflation as it hits us . Clearly our spending power is deminishing as the actual number in dollar terms increases.

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