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

"The incompetence of the present Treasurer and government".
This statement is naive and shallow.! The Reserve Bank manages monetary policies. Australian banks have since 2008 borrowed funds on the international market at very low rates and lent to Australian businesses at a higher rate to make a profit for their shareholders.
Pure business decisions. Banks take risks in doing so.
Shareholders also take risks in investing in banks - remember the State Bank of Victoria?
Twenty years ago, Nick Leeson caused the collapse of Barings, the City’s (London)oldest merchant bank and banker to the Queen.
Funds are now more expensive to borrow - so trading banks are now increasing interest on mortgage funds. More profits for banks.
4% dividend plus franking credit is better than 2% on fixed deposits.
Yes a rate increase is overdue so banks can make more money and recompense their shareholders. Supply and demand - simple!

Again you seem to have your terms mixed up Lorikeet. Interest earned on investments is income and not growth.
If the interest was re-invested, this would account for growth.
Interest is the income generated by the deposit or term deposit. Growth is the increase in value of the investment over time. For a rental property, the rental generated is the income and the increase in house value is the growth. Similarly for Shares, dividends are the income and the rise in share prices is the growth.
I hope that you are now able to differentiate between interest and growth

One more point: Very low interest rates on bank accounts and safer superannuation investments do not amount to growth, when the rate of growth is below the true rate of inflation.

Lorikeet, I agree that the top earners should pay more tax. However fixing this still leaves a huge budget deficit.
The top income earners on average pay a lower % of their incomes as tax, than middle income earners. Someone suggested a Buffet rule be introduced to ensure high income earners paid a minimum tax.
We should make large companies,domestic and international, pay their share. Currently they export their profits to low tax havens , to substantially reduce or eliminate Aussie tax payable. This is costing Australian more than 10 billion dollars annually.
Spending should still be cut, but rather than directing cuts at the lower end of town, we can stop borrowing billions of $ every year to give wealthy taxpayers very generous NG and CGT concessions. If we can't pay pensioners what they deserve, then why are we subsidising the wealth of high income earners?

Instead of spending cuts, the government should start taxing the top 1% who currently pay no tax at all and then turn their attention to the top 10%. Then they wouldn't have a need to engage in spending cuts at all.

As Terry has pointed out, the banks don't give a toss for the RBA's lead and do whatever they want. What has happened in the past appears to be redundant in the modern world, as the banks are forced to borrow cash from overseas to make up for the shortfall of deposits.

I have pressed for a lowering of deeming rates for quite some time.

The topic also asks us about term deposits, and my comments were addressing that part of the question. I don't think it is necessary for anyone to suggest I was engaging in "false facts" or that I have an interest in joining Donald Trump. This is quite uncalled for.

I have not suggested that interest alone decides the overall financial health of a person's bank account. In fact, what I have said is quite the opposite.

It would appear that banks have ignored the lead of the RBA in keeping rates unchanged.

There have been several bank sourced items appearing in the news threads that banks have increased their rates for investment loans and also are announcing the need to increase home and personal loan rates by up to 3% in the medium term. While this may be welcomed by those unfortunate enought to rely on interest income, those with home loans will be extremely unhappy.

Time will tell, but it appears almost certain that banks will be announcing rate increases ahead of any RBA decision to lift rates. Oh, and you can be certain that loan interest rates will increase well before any increase in deposit or fixed term investment rates, if they increase at all!

Lorikeet - NO I said what I thought you were saying. Your statement lacked real fact and substituted false fact. Maybe you should think of joining Trump's team.

Interest and charges are two entirely different things and when charges are higher than the interest earned then of course the balance held reduces. BUT this is entirely due to charges being higher than interest and not consequent upon interest alone as you claimed. Read you words again as you actually said them and not as you thought you said them.

Bob B., you are just repeating what I said using different words.

Actually, when the interest rate is below the true rate of inflation, it actually prevents the money invested from growing. As with the economy, growth can be used to disguise a backslide.

The decision on whether an interest rate rise is warranted is dependent entirely on the economy. Rising intest rates when growth still needs stimulating could send the economy into recession.

The RBA should only consider economic factors in making decisions on interest rates. Helping seniors out with their bank deposit interest rates is not a consideration, but curbing unnecessary government expenditure, and stimulating consumer spending are considerations.

Investors with bank deposits need to accept that at times interest rates can and are very low or moderately high. At present they are the lowest they have ever been, due to the economic mismanagement by the present government.

Maybe Lorikeet should be pressing for lower deeming rates, because interest rates will only be lifted when growth and consumer spending improves. That will be later rather than sooner due to the governments incompetence.

Lorikeet, it is little wonder that you can't see the point raised by Anonymous. You are talking bank deposits, while Anonymous is talking RBA and home loan rates.
On the subject of heavy lifting, the RBA did it's best to stimulate the economy, while the government sat on its hands. Almost the only actions to stimulate the economy were the RBA's interest rate cuts, and the pension cuts by Abbott and Turnbull.
There is no point in only highlighting problems and blaming the two major parties. That is easy. I would rather be part of the solution than part of the problem. We need to look for ideas to curb spending, and not just condemn potential solutions as the government is doing. What ideas for spending cuts can you offer?

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