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Posts Tagged ‘interest’

RBA leave Cash Rate Unchanged

Posted by Tamara McDowell on July 8, 2010

The RBA decided to leave the official cash rate unchanged this month at 4.5 per cent, citing volatile financial markets caused by problems in Europe as the main reason.

It’s the second month in a row the RBA has kept rates on hold. Governor Glenn Stevens hinted that the next rate movement may not be for a few months to come.

“The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. Pending further information about international and local conditions for demand and prices, the Board views this setting of monetary policy as appropriate,” he said.

The full statement can be viewed here.

The decision by the RBA to keep official rates at 4.5 per cent is welcome news for mortgage holders.

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RBA Holds Cash Rate

Posted by Tamara McDowell on June 1, 2010

Tuesday 1 June 2010

The Reserve Bank of Australia today announced that the official cash rate would remain unchanged at 4.50%p.a. Click here for the full statement by the RBA Governor Glenn Stevens.

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RBA to hold rates at 4.5%

Posted by Tamara McDowell on May 19, 2010

Minutes from the last Reserve Bank meeting showed that, while the decision to increase the cash rate from 4.25% to 4.5% was pretty much cut and dry, the central bank will keep rates at this level as it evaluates the impact of the six rises in seven months.

“The decision to raise rates followed a material upgrade to the Bank’s economic and inflation forecasts and so reflected the RBA’s desire to head off the inflationary impact of Australia’s commodity boom mark II,” said ANZ economist Katie Dean.

“ The minutes show that at the time of the May policy meeting, the bank regarded the problems in Greece as predominantly European issues that were having little impact on Australia. However, as the contagion has spread the RBA is mindful that Europe’s problems could turn into Australia’s problems.

“Since the May policy meeting we have seen further strong data out of China but also a notable rise in global risk premia from European sovereign debt issues,” Dean said.

“The latter should be more than enough to keep the RBA on the sidelines for now.”

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Major banks pass on rate rise

Posted by Tamara McDowell on May 5, 2010

All four of the nation’s biggest banks passed along the rate rise yesterday following the Reserve Bank’s decision to push rates up by 25 basis points.

It’s the RBA’s sixth increase in eight months, bringing the official cash rate to 4.5%.

Treasurer Wayne Swan said it was “unfortunately one of the difficult consequences of an economy recovering better than other advanced economies”.

CBA was the first the react to the RBA’s decision announcing its own change to interest rates within minutes of the announcement. But ANZ, NAB and Westpac were not far behind. The banks also passed on the full rate rise to their high-interest deposits accounts.

The changes will bring Westpac’s variable loan to 7.51%, while ANZ and CBA’s variable home loan sits at 7.41% and 7.36% respectively. NAB’s variable rate product is the lowest at 7.24%.

Repayments will increase by another $48 per month on an average $300,000 mortgage.

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Reserve Bank Lifts Interest Rate

Posted by Tamara McDowell on May 4, 2010

Statement by Glenn Stevens, Governor: Monetary Policy Decision

 At its meeting today, the Board decided to raise the cash rate by 25 basis points to 4.5 per cent, effective 5 May 2010.

The full statement can be viewed at: RBA Media Release

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Yet another rate rise is on the cards

Posted by Tamara McDowell on May 3, 2010

With Australia’s economic indicators continuing to point to strong growth, the Reserve Bank may have little choice but to increase the cash rate by another 25 basis points when it meets tomorrow.

Producer and consumer prices, which indicate inflation, both came in above market expectations in the first quarter of the year. Core prices increased by 3.1% in annual terms – placing them outside the RBA’s 2-3% range.

“While recent RBA commentary has suggested a more gradual monetary adjustment process from this point, we think the risk to inflation is too great and that the RBA will need to raise the cash rate for a third-consecutive month,” ANZ research analyst Andrew Dowman said.

AMP Capital’s chief economist Shane Oliver agrees, saying that the combination of strong inflationary pressure and continued economic growth will put pressure on the central bank to tighten monetary policy.

“The pick-up in the quarterly pace of underlying inflation in the March quarter coming at a time when economic growth has returned to trend, national income is likely to receive a strong boost from higher iron ore and coal prices and house prices are booming is likely to drive the RBA to continue the process of raising interest rates back to longer term average levels,” Oliver said. “As a result we expect another 0.25% hike in the cash rate taking it to 4.5%.”

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Will RBA put the brake on rate hikes?

Posted by Tamara McDowell on April 28, 2010

Leading economists are predicting an extended pause on official interest rate rises as inflation pressures ease across the Australian economy.

An AAP survey of financial market economists shows that inflation is expected to rise just 0.7% for the quarter, putting the annual figure at 3%. This would be inside the RBA’s target band and well down from the peak of 4.7% 18 months ago.

Governor Glenn Stevens indicated that tomorrow’s release of the March quarter CPI figure would have a significant impact on the bank’s decisions over the next three months.

Reserve Bank of Australia Governor Glenn Stevens has told a business forum that inflation is now close to target and interest rates were falling back to normal levels.

“The Reserve Bank has moved early to raise the cash rate to levels that deliver interest rates for borrowers and depositors more like those that have been the average experience over the past 10 to 12 years,” Mr Stevens said in Toowoomba last week.

With interest rates now close to average, this may be a sign interest rate rises will cease, at least for now.

Access Economics warned, however, that inflation could build to 3.2% in 2011, driven by business activity and wage growth.

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May Rate Rise not Warranted : CBA

Posted by Tamara McDowell on April 21, 2010

CBA released a new report today showing consumer spending in March was the strongest it has been in eight months.

The Commonwealth Bank Business Sales Indicator (BSI) rose 0.7% for the month. However, the bank warned that this was no excuse to raise official interest rates further, despite indications from the RBA that rates may go up again in May.

“While the latest figures appear solid, it’s important that the Reserve Bank doesn’t overreact,” CBA executive general manager of local business banking Symon Brewis-Weston said. “Interest rates have lifted sharply since late last year, and the effects are being felt, with housing loans down five months in a row.”

The BSI recorded an increase in sales in all states and territories. The ACT topped the list with 1.2% growth, followed by Western Australia on 1.1%. Sales growth in NSW and Tasmania was a more sluggish 0.6%.

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Home loan demand falls for fifth month

Posted by Tamara McDowell on April 13, 2010

The Reserve Bank of Australia (RBA) will raise the cash rate one more time before giving borrowers a long reprieve, economists say, after new data showing that housing finance commitments fell for the fifth straight month in February.

Australian housing finance commitments for owner-occupied housing fell 1.8 per cent in February, seasonally adjusted, to 50,287, the Australian Bureau of Statistics said on Monday.

It was below market forecast of a 1.0 per cent fall in the month and was the fifth straight month of decline.

ICAP economist Adam Carr said the lending data would concern the RBA, causing the Bank to reassess the pace of future interest rate rises.

“It’s pointing to a sharp, broad-based decline in lending activity,” Mr Carr said.

“That would suggest to me that we’re getting to the point where the pace of rate hikes will slow, markedly.

“The RBA will only hike once more and then ease off.”

The central bank has lifted the cash rate five times in the past seven months.

The current interest rate is 4.25 per cent.

Meanwhile, RBA assistant governor Guy Debelle told a Senate committee in Sydney the central bank isn’t trying to suppress demand by raising interest rates.

“We’re trying to ensure growth is at a sustainable pace,” he was reported by Bloomberg to have told the Senate Inquiry into Access of Small Business Finance.

Mr Carr said Monday’s ABS data showed activity already was being dampened.

“It’s already happening,” he said.

“So I would imagine that there’s not a lot left in the tightening cycle in the near term at least.”

He could not predict whether the bank would next raise the rate in May or June, however. Read the rest of this entry »

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Bank Update

Posted by Tamara McDowell on April 7, 2010

It is interesting to note the speed at which lenders are able to make the decision to increase rates after a move by the central bank when compared to the consideration that was taken when the cash rate was on its way down

The first to move were the Commonwealth Bank of Australia and Westpac – they have raised their variable mortgage rates by 25 basis points, relieving some mortgage holders by only matching the Reserve Bank’s hike.

Followed closely by ANZ and NAB – they have fallen in line with Westpac and CBA and lifted the rates on their mortgages by 25 basis points.

NAB continues to have the lowest standard variable rate mortgage at 6.99% and is the only Big 4 bank to have one less than 7%. CBA is next in line with standard variable rate mortgages at 7.11%, followed by ANZ at 7.16% and Westpac with 7.26%.

The move by the Reserve Bank to increase rates 25 basis points is being heralded as a smart decision by economists who believe that getting the cash rate to a neutral setting will save much higher interest rates in the long term.

“This will help to contain growth and moderate inflation risks in an otherwise strong economic environment,” ANZ chief economist Warren Hogan said in an investor note. “Importantly, an early return to neutral monetary policy settings, that is, a level of interest rates neither stimulatory nor restrictive to overall economic activity, will reduce the risk of inflation and a larger increase in rates later.”

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Interest Rate predictions

Posted by Tamara McDowell on April 7, 2010

Analysts are split on what the Reserve Bank would consider a neutral setting for the cash rate and are predicting that it will sit between 4.25% and 5.25% by December – it is currently 4.25% after the rate rise yesterday.

On the low end of the scale, Clifford Bennett of Kinetic Securities and Stephen Roberts of Nomura think rates will not go any higher, while BIS Shrapnel and Westpac are predicting a cash rate of 4.5%.

According to SKY News, AMP and St George think the cash rate will rise to 4.75% by year-end, while ANZ, JP Morgan and Macquarie think the central bank will stop its tightening policy at 5% this year. Only NAB thinks the cash rate will go to 5.25%.

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Interest Rate Update

Posted by Tamara McDowell on April 6, 2010

The Reserve Bank (RBA) meets on the first Tuesday of every month …….. today is the day!

While economists were split on whether the RBA would move today the RBA have officially lifted the cash rate from 4.0 per cent to 4.25 per cent.

Earlier Swan appeared to be softening mortgage holders up for a blow: “I think most families understand rates are currently at 1970s levels and can’t stay there forever,” he said.

The RBA raising rates 1.25 per cent from their near 50-year low of 3.0 per cent over the past six months has impacted on consumer activity, however we are still below the long term trend in interest rates and we’re still lower than we were a couple of years ago.

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Interest Rate Rises Inevitable

Posted by Tamara McDowell on March 26, 2010

Australian interest rates will continue to rise to more normal levels despite global jitters as holding off with increases risks falling behind on inflation, according to a top central banker.

Meanwhile Businessspectator reported RBA assistant governor Philip Lowe as also issuing the clearest warning yet against a speculative bubble in home prices, while welcoming a higher local dollar as part of boom in the country’s terms of trade. 

The Australian dollar duly rallied after his speech while bill futures slid as investors revised up the chance of a rise in the cash rate as early as next month. 

“The RBA remains very upbeat and that means a rate hike in April is more likely than not,” said Rory Robertson, interest rates strategist at Macquarie. 

The central bank has already lifted rates by a full percentage point in six months and the market was now implying a 57% probability of a move to 4.25% at the next policy meeting on April 6.  Read the rest of this entry »

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Lenders Lifted Rates 0.22% more than RBA since July

Posted by Tamara McDowell on March 26, 2010

A look at more than 200 standard variable mortgages has shown that home loans have risen, on average, 1.22% since July – 22 basis points more than the RBA’s 1% increase in the cash rate.

The research, conducted by financial comparison site RateCity, found that the average standard variable rate mortgage sat at 2.31% above the RBA’s cash rate of 3.75% in February.

Over the past two years the gap between the cash rate and the standard variable mortgage rate was just 1.75%.

The RBA’s cash rate now sits at 4% after the 25 basis point rise on March 2.

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Wayne Swan on Westpac

Posted by Tamara McDowell on March 24, 2010

| 24 Mar 2010

Federal treasurer Wayne Swan has again slammed Westpac, claiming the bank has become a “serial offender” in “taking its customers for a ride”.

Referring to Westpac’s latest decision on credit card interest rates and its supersized home loan rate hike in December, Swan said this was “exactly why people don’t like the big banks”.

At 7.01%, Westpac’s variable home loan rate is the highest of all the major lenders. By contrast, Credit Union Australia announced yesterday it was cutting its variable rate by 25 basis points, opening up a yawning gulf between it and the big banks. CUA’s standard variable rate is now 6.37%, 0.64% lower than Westpac’s.

A professor of finance at the University of NSW, Fariborz Moshirian, told The Australian Financial Review that there was in fact no justification for extra rate rises by the banks, as international credit markets had settled in recent months. Read the rest of this entry »

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Shop around…

Posted by Tamara McDowell on March 3, 2010

Yesterday’s interest rate increase is a reminder to mortgage holders to shop around if they are looking to refinance their home loan, according to the Mortgage and Finance Association of Australia.

“Changes to the official interest rate can present an opportunity to borrowers to get a better deal,” said Phil Naylor, Chief Executive of the Mortgage and Finance Association of Australia (MFAA).

He said all lenders were competing for business and mortgage brokers were best placed to find consumers the right loan from a range of lenders.

“There is considerable potential to save money through refinancing and the best way to shop around is through an MFAA accredited mortgage broker,” said Naylor.

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Interest Rate Announcement!

Posted by Tamara McDowell on March 2, 2010

Having held off raising interest rates in February, the RBA has today, as expected, pushed up the official cash rate by 0.25%

The central bank’s decision means that the official rate will rise to 4%.

The question though remains – will the major banks increase their rates beyond the official increase?

Were they to do so, any justification would be hard for mortgage holders to swallow, given the healthy interim and quarterly profits announced recently by all the major banks as well as the continued thawing of wholesale funding markets.

Making the announcement today, RBA governor Glenn Stevens said that the global economy was growing, and world GDP was expected to rise at close to trend pace in 2010 and 2011.

“The expansion is still hesitant in the major countries…[but] in Asia, where financial sectors are not impaired, growth has continued to be quite strong. The authorities in some countries are now seeking to reduce the degree of stimulus to their economies,” he said.

Stevens said in Australia economic conditions in 2009 were stronger than expected, after a mild downturn a year ago.

“The rate of unemployment appears to have peaked at a much lower level than earlier expected. Labour market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months,” he added.

He also said there were some signs that the process of business sector de-leveraging was moderating, with the pace of decline in business credit lessening and indications that lenders are starting to become more willing to lend to some borrowers.

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How Much Can I vs How Much Should I

Posted by Tamara McDowell on February 9, 2010

The choices you make when taking out a mortgage have long-lasting implications – so you need to approach borrowing with a healthy attitude.

How much you can borrow and how much you should borrow are two very different things. While your lender should not let you borrow more than you can afford, ultimately the choice is yours – so be careful not to over commit yourself.

When determining your borrowing capability, start by measuring your income against expenses, including your mortgage repayments. A good rule of thumb is that no more than 35 per cent of your gross monthly income should go towards servicing your mortgage.

Lenders use a similar method to work out how much to lend you. As a general rule, the bigger deposit you have and the higher your
income,the more they should be willing to lend.

While your lender will give you a maximum borrowing amount, it’s essential that you determine your own borrowing capacity when searching for your new home.
Ultimately the choice is yours – so be careful not to over commit yourself. Read the rest of this entry »

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Basic Explanation of Interest

Posted by Tamara McDowell on February 7, 2010

The rate of interest you’ll pay on your mortgage depends on a combination of factors. This can include the Reserve Bank of Australia’s (RBA) cash rate, your lender and the type of loan you have.

Interest rates are normally expressed as a percentage rate over the period of one year.

 An interest rate is the price a borrower pays for the use of money they borrow from a lender.

Basic explanation of Interest.

Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money, or, money earned by deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money.

Interest can be thought of as “rent of money”. When money is deposited in a bank, interest is typically paid to the depositor as a percentage of the amount deposited.

When money is borrowed, interest is typically paid to the lender as a percentage of the amount owed. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year), is called the interest rate.

Interest is compensation to the lender, and for forgoing other useful investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost.

Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the benefit of using the assets ahead of the effort required to obtain them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege.

The amount lent, or the value of the assets lent, is called the principal. This principal value is held by the borrower on credit.

Interest is therefore the price of credit, not the price of money as it is commonly believed to be.

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Interest Rate Update

Posted by Tamara McDowell on February 2, 2010

February 2nd 2010

Borrowers have been given a reprieve, with the Reserve Bank surprising pundits by leaving interest rates on hold – for now.

The central bank cited excessive hikes by major banks as one of the reasons for holding back. The market had been strongly tipping a quarter-percentage point rise – and the RBA’s statement today suggests more rate rises in future.

The RBA left its key cash rate unchanged at 3.75 per cent after its monthly board meeting. The outcome snaps a run of three consecutive monthly increases that began in October, and added as much as $185 to a typical $300,000 home loan.

The dollar dived more than one US cent when the news was announced, falling to 88.23 US cents before sinking even further to sit at about 88.08 US cents 30 minutes later. Just before the RBA announcement, it had been buying 89.24 US cents. Read the rest of this entry »

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