The Reserve Bank of Australia (RBA) has left its options open for the April 6 board meeting.

In the minutes of the monetary policy meeting on March 2, the RBA said board members concluded that recently available evidence “had confirmed that it remained appropriate to move gradually towards normal levels, and that it was timely to take another step in that direction”.

There was nothing in the minutes, released on Tuesday, to suggest it be timely to do it again on April 6, however.

The use of the word “gradual” suggests the central bank may be in no hurry, and may wait until May, timing the move for right after the March quarter consumer price index data in late April to highlight the centrality of inflation in its decision-making process.
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New data showing weak lending finance is evidence of an economy slowing after the government stimulus has worn off and could spare borrowers an April interest rate rise, economist says.

Total personal finance commitments fell 1.5 per cent in January, seasonally adjusted, to $6.921 billion, from $7.028 billion in December, the Australian Bureau of Statistics (ABS) said on Monday.

The fixed loan component of the data fell 2.1 per cent, its fifth straight monthly fall since August 2009.

Fixed loans - or loans of a fixed amount - make up 46 per cent of total personal finance commitments.

CommSec economist Savanth Sebastian said the data pointed to a slowing economy and could be enough to stay the Reserve Bank of Australia (RBA) from raising the cash rate from four to 4.25 per cent.
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Potential first homebuyers are giving up their search each time lenders hike interest rates on home loans.

Within three days of the Reserve Bank of Australia lifting the official cash rate by 25 basis points to 4.0 per cent last week, 26 lenders had passed on interest rate rises on 175 home loan products, according to financial comparison website RateCity.

That prompted two per cent of potential first home buyers to halt their search, according to Australia’s biggest mortgage broker, Mortgage Choice.

Another three per cent would withdraw from the market if interest rates climbed another 75 basis points, Mortgage Choice said.
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Demand for credit in January grew at its fastest pace in a year, despite three interest rate rises at the tail end of 2009, new Reserve Bank of Australia data released on Friday shows.

Housing credit remained at a steady clip and other personal loans showed some improvement, but business borrowing stayed in decline.

Still, the January rise in total credit was a modest 0.4 per cent and failed to stop the annual rate easing to 1.3 per cent growth with consumers and business showing some caution after last year’s economic downturn.

A year earlier the annual rate was running at 6.5 per cent.
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Growing concerns about rising interest rates and inflation will shift investors’ approach to fixed income investing, says ING Investment Management’s (INGIM) US based corporate loans specialist, Dan Norman.

On a recent visit to Australia, Mr Norman - who is responsible for managing over US$10 billion in senior loans as Group Head of INGIM’s Senior Loan Group - said investors need to hedge against an inevitable rise in interest rates.

“Australian investors understand all too well how rapidly monetary policy shifts can occur. The local cash rate has increased three times in the past four months with expectations it will reach 5% by year’s end. And in the US the LIBOR rate is sitting close to zero compared with the 30 year average of 4.0% - that’s just unsustainable,” he said.
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Key data on business investment due this week will give home owners more clues about the prospect of another interest rate rise in March.

Economists are expecting capital expenditure figures for the final quarter of 2009 to show a recovery of 1.5 per cent, rebounding from the previous quarter’s 3.9 per cent decline.

Commonwealth Bank chief economist Michael Blythe said a healthy result on Thursday would increase the chance of the Reserve Bank voting to increase interest rates when the board next meets on March 2.

“We continue to expect the board to raise rates by 25 basis points at this meeting,” he said in a statement.
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A decline in total lending finance commitements in December supported the case for the central bank to leave interest rates unchanged this month, an economist says.

CommSec chief economist Craig James said a 1.3 per cent fall in total new lending commitments in December was disappointing.

“It is the second fall in the last three months,” Mr James said.

“Lending is back down on a year ago, down 3.3 per cent.

Personal finance commitments rose 0.2 per cent in December, seasonally adjusted, to $7.040 billion, the Australian Bureau of Statistics (ABS) said on Monday.
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Mortgage delinquencies are set to rise in 2010 as borrowers battle rising interest rates and Christmas-induced credit card bills, says global ratings agency Fitch.

Home loans in arrears by more than 30 days increased across all borrower categories during the December 2009 quarter, Fitch said in a report released on Monday.

Arrears on mortgages held by non-conforming, low-documentation borrowers spiked more than 50 per cent on the September quarter as the impact of three consecutive interest rate rises kicked in.

Non-conforming borrowers represent a small portion of the mortgage market and, as expected, they were the first to be hit by the interest rate hikes, associate director of Fitch structured finance RMBS (residential mortgage-backed securities) team, Leanne Vallelonga said.

“Further deterioration is expected.”
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Source: Press Release

The Reserve Bank’s interest rate decision simply means there has never been a better time to take out a mortgage with a non-bank lender.

SCMC director Heidi Armstrong says today’s Reserve Bank board decision to leave the official cash rate at 3.75% highlights the fact that home loans from the big banks “represent very poor value for money”.

“The big banks have standard variable home loan rates up to 1.12% higher than our standard variable rate and the gap between our rate and their rates has never been wider,” says Armstrong.

“The media keeps quoting bankers’ claims that the non-bank lending sector is ‘fragmented’ when companies like the State Custodians are in excellent shape,” she says.
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Mortgage broker Loan Market Group has welcomed the central bank’s decision to leave the official interest rate unchanged but says mortgage holders can still expect rises in the months ahead.

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 3.75 per cent after its first board meeting of the year on Tuesday.

Most financial market economists had expected a rise of 25 basis points to four per cent.

Loan Market Group executive chairman Sam White said the decision would allow the RBA to examine the impact of the three rate rises made late last year.

“What they’re trying to do is assess the impact of the previous rises,” he said.

“Australians are also coming back from holidays.
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A move by major banks to lift their interest rates higher than the central bank’s rises may mean official rates are left on hold in early 2010, Commonwealth Bank of Australia (CBA) chief executive Ralph Norris says.

The Reserve Bank’s 25 basis point rate rise to an official cash rate (OCR) of 3.75 per cent in December was followed by Westpac’s controversial 45 basis point rate hike for home loan borrowers.

CBA lifted its standard variable rate on home loans by 37 basis points, ANZ lifted its rate by 35 basis points while National Australia Bank (NAB) matched the Reserve.

Mr Norris said the banks’ controversial moves may result in the Reserve leaving rates on hold when it next meets.

“I think given the fact that there have been interest rate increases over and above the (official cash rate) then I think it is a possibility that we might not see an increase in February,” he told Sky Business.
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Expectations for higher interest rates are continuing to ease in the wake of soothing comments from the Reserve Bank of Australia (RBA) and soft GDP figures this week.

Even so, bullish outlook for the cash rate built into financial markets stills seems at odds with the slow economy and the RBA’s own assessment of the state of credit markets.

At the close of trading on Tuesday, expectations embodied in the futures market were that the RBA would raise the cash rate, now at 3.75 per cent, to 4.5 per cent by the middle of 2010.

The market expects the RBA to raise the cash rate to 5.0 per cent by the end of 2010 and 5.25 per cent - the average of the past decade - by early in the second quarter of 2011.

Such a prospective magnitude of change in the cash rate would not have seemed out of the ordinary.

After all, between early September 2008 and early April this year it had been cut from a 12-year high of 7.5 per cent to a 49-year low of 3.0 per cent.
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An eight-month low in lending finance approvals recorded in the month of October will have no more bearing on the interest rate outlook than the 18-month high recorded a month earlier.

The total value of finance commitments fell by 9.7 per cent in October to $50.766 billion, seasonally adjusted, from $56.208 billion in September, data from the Australian Bureau of Statistics (ABS) on Monday showed.

Within the total, commitments for housing finance, including alterations and additions, fell by 1.7 per cent while, other personal finance was down by 1.5 per cent, however the overall fall was dominated by commercial finance, which recorded a 16.3 per cent drop.

It is tempting to try to attribute these movements to some underlying economic cause, but the volatility of this series warns against that.
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The federal government’s deposit guarantee has helped the big four banks take an even greater share of the mortgage market but borrowers will return to non bank lenders because they offer a better deal, says mortgage broker Resi Home Loans.

Resi’s head of consumer advocacy Lisa Montgomery said borrowers increasingly felt disenfranchised by the pricing power of the major banks.

All the majors - with the exception of National Australia Bank (NAB) - jacked up their variable mortgage rates by much more than last week’s official increase in the cash rate by the central bank.

“The decision last week by three of the big four banks to lift their mortgage rate above the Reserve Bank of Australia’s (RBA) target interest rate disenfranchised borrowers, Ms Montgomery said.

“I think that it’s a bit of an awakening time for borrowers at the moment.
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Borrowers seeking to refinance their mortgage in light of recent interest rates increases have been urged to use Mortgage and Finance Association of Australia (MFAA) accredited mortgage brokers.

“Recent increases to interest rates may prompt consumers to shop around, but we’d encourage consumers to seek out MFAA accredited brokers,” said Phil Naylor, CEO, MFAA.

Mr Naylor said that mortgage brokers accredited through MFAA are best positioned to find the most competitive loan products for consumers from a range of lenders. They are also are held to high professional and ethical standards of conduct, experience and education which non-members are not.

“Our independent research shows that consumers are consistently more satisfied when using a broker than going directly to a lender, and borrowers with loans administered by a broker are less likely to struggle with repayments,” Mr Naylor said.
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