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

Lorikeet, the blog referred to the interest rate set by the RBA. If the RBA raises or lowers rates, the banks have the option of passing on the rise or fall. In practice, usually banks raise them in full and immediately, and lower them partially with some delay.
My comments addressed the effect of home loan and bank charges, while your comments addressed bank deposit rates and bank fees. The confusion was caused by your description of bank fees as charges.
If you choose to invest money in bank interest for a paltry return, instead of buying shares for a return 4-8 times the banks interest rate, that is a poor investment decision. If you insist on bank deposits, refer to Bob Bs letter for the reasons for your confusion.
You would need to have some financial knowledge to appreciate my heavy lifting comment. Because the Liberal government failed miserably with their monetary policy, the RBA was forced to continually lower rates despite this causing little effect.

Lorikeet. Interest is interest and charges are charges, quite different things. So when an account receives any interest and has a higher quantum of charges it is charges that sends the account backwards not interest. Effectively, the combined effect of interest and charges is negative. Under interest alone it grows. Simples.

I think interest rates are more likely than not to rise this year. That’s hardly a bold prediction and I doubt the rise will be substantial. It certainly won’t be something term deposit holders will cheer about, assuming the banks pass it on, but I guess a small rise is better than nothing.

Rates are historically low and, to borrow a phrase from our PM, there has never been a better time to raise overseas funds for major infrastructure projects. I would like to see bipartisan big thinking on things like the east coast fast rail, the new airport in Sydney and importantly, planning to grow major cities outside the State Capitals. Infrastructure in Sydney is lagging badly behind population growth and the planners’ jobs are only going to be harder the longer it is left. Not an easy task but not impossible either. BG.

Anonymous, if you have money in a bank account and the pitiful amount of interest you receive is outweighed by bank charges, you have effectively received less than zero interest on your bank account. This is not rocket science, nor is it a guess.

I try not to use terms such as "never" or "won't happen" in case I am wrong. There is no point wearing egg on your face if you can leave it to others. I think it is unlikely that the RBA has done any heavy lifting, but do not believe that Labor or Coalition have any intention of coming up with good fiscal policy, as both have a long track record of sending Australia backwards.

I am willing to take bets that there will be no further interest rate cuts, but just can't put a timescale on the next increase because of the incompetence of the present Treasurer and government.

Despite your comments Lorikeet, I am fully aware that interest rates can dip below the present 1.5%, but they won't.
The RBA Chairman is on the record as saying that the next movement is up. He is unhappy that all of the heavy lifting to fix the economy has been left to the RBA, and says it is now up to the government. With their spectacular lack of long or short term fiscal policy, I am not hopeful.
I am really interested in how you would use bank charges to negate interest rates. Bank charges can add to the repayments, but how would they negate interest rates.
Maybe you should stop guessing and stick to facts when making statements. Guesses are only a 50% chance of being right, while facts speak for themselves.

I guess Anonymous is not aware that interest rates have dropped to a minus score in some overseas countries, or that interest rates can easily be downsized to zero, or negated altogether using bank charges.

I have not considered any Coalition or Labor Prime Minister to be worthy of my support in the last 40 years. The only reason Malcolm Turnbull is hamstrung is that the major parties have both agreed to allow their Prime Ministers to be the ham (AKA marionette of puppeteers).

Seniors should not bank on a small rise in interest rates to bolster their retirement. Anyone who has their retirement nest egg tied up in only one asset class (cash) cannot complain when their retirement sinks with the declining interest rates.
Thankfully, at 1.5%, interest rates are at the lowest ebb. The RBA has been forced to take rates to their historical lowest point by government inaction and mismanagement. To expect a change will require the government to actually do something. So unfortunately interest rates will remain low for some time yet, but at least the only way they can go now is up.
Seniors should call on the government to rethink their inactivity and finally start good government. Abbott failed and Turnbull appears hamstrung. He needs to stand up and become the man we thought he was at the last election.

Seniors will receive some extra return on their cash investments if interest rates rise. But they should not have high expectations, as rate rises will be minor, and some way off yet.
Any rate rise will occur not because seniors need it, but because the economy is improving. That is unlikely in the short term as growth is subdued. Rate rises are used by the Reserve Bank to stop the economy overheating. At present it is lukewarm at best.
It is government policy which determines economic activity, and the mob we have in power now, does nothing to engender confidence. After 4 years in power, they still don't have an economic plan and are making decisions on the run.
Any prospect of rising interest rates is dependent on this government making decisions for the good of the nation, and not just try to deflect attention from their own mistakes and infighting, and their lack of competence in economic matters. We need competence and we are getting bumbling and blame shifting.

Sorry I missed the discussion on younger people accessing their superannuation to buy a home. No doubt Coalition politicians who support this are eager to boost their own superannuation holdings by ensuring lots of empty apartments are sold to younger people. This would be in keeping (or in Keating) with Agenda 21 signed by Paul Keating in 1992 which includes housing more people in cramped high rise accommodation close to railway stations so they will learn to live without cars.

Examples of this were pointed out by coach drivers in New Zealand last week. I also noted a significant trend towards developing covenants that affect the colour of your home to blend in with trees and rocks (greens, browns, greys, creams).

My opinion on young people accessing superannuation to buy homes would need to be tempered by a number of other considerations, concomitant changes and privileges (e.g. income, age, PHI status), not one "stand alone" policy being viewed independently of others.

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