The Reserve Bank of Australia made their announcement today to leave the official cash rate unchanged at 1.5%. It has now been two years since the last cash rate move. We think this is due to a combination of factors including very low wages growth, high underemployment, flattening property prices and home lending and modest inflation. Many experts are predicting it may be some time before we see the next rate movement and it may actually be downwards.
Another emerging factor is lenders making ‘out of cycle’ rate increases. The term ‘out of cycle’ refers to lenders increasing rates independently of the Reserve Bank. Gone are the days when lenders relied almost entirely on customer deposits and domestic short-term borrowing, pegged against official RBA rates to fund loans. Most lenders now have much more complicated funding structures including accessing offshore wholesale and securitisation markets. Regulatory changes designed to strengthen the banking system have also seen the amount of capital lenders are required to hold increase, which means they have had to look to more expensive sources than their own balance sheets to fund loans.
Now might be the perfect time to look at your finances, contact us to talk through how this decision & lenders ‘out of cycle’ rate increases will affect you.