While the Reserve Bank is playing nice before Christmas, with many predicting that they’ll keep official interest rates on hold until next year, it looks like the banks will be struck off Santa’s gift list as they play naughty.
It’s expected that a number of the big banks will flout the RBA’s decision to maintain cash rates at their current level (4.5%) during their August 3rd meeting, in favour of an increase in retail rates intended to offset increased funding costs and declining profit margins.
While the banks’ net profits have been in the billions for the most part – as recently reported by the CBA – lenders are now contending with a rise in funding costs as a direct result of the GFC, which forced them to seek more expensive, largely offshore funds. This, combined with the banks competing for business by offering enticing savings deposit rates (in some instances higher than the home loan interest rate), are both taking a toll on banking profits…and we all know how much banks like a good profit!
As discussed in our feature article this month, now might be a very opportune time for borrowers to consider fixing a portion of their debt, before the banks make their inevitable move.
I’m not really a betting man, but odds are pretty good that the experts’ predictions will be realised sooner rather than later, and hedging some of your debt against not only the banks’ impending interest rate rises, but the RBA’s (we all know they won’t be this low forever), isn’t such a bad idea.
