Movements on credit card interest rates by the big four banks over two years show banks have kept 85 per cent of the net benefit gained from the Reserve Bank of Australia’s (RBA) interest rate cuts.

By March 1 the net impact of the RBA’s movements in the official cash rate over the last two years was a 3.5 per cent decline from the cycle’s high of 7.25 per cent in March 2008.

While banks passed on the majority of the RBA’s interest rate cuts to home loan borrowers, data from financial comparison website RateCity shows the big four kept 85 per cent, on average, of the net gains of the interest rate movements from credit card borrowers.

A comparison of movements in interest rates charged on both standard and low-rate personal credit cards over the past two years showed the net impact of rate hikes and cuts was an average drop of just 0.5 per cent.
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Housing loan approvals fell again in January as an increased flow of credit to investors was more than offset by the continued slide in lending to first home buyers.

The number of loans to home buyers fell by 7.9 per cent in seasonally adjusted terms, the Australian Bureau of Statistics (ABS) said on Wednesday.

It was the fourth fall in a row and the biggest for nine years.

It brought to the total to a 15-month low, 21 per cent below the peak in June.

The proportion of first-timers in the total fell to 20.5 per cent, also a 15-month low, well down from the recent peak of 28.5 per cent in May.
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Economists are unable to agree when further monetary tightening will occur, following the release of the central bank’s February board meeting minutes on Tuesday.

The minutes show the Reserve Bank of Australia (RBA) left the cash interest rate unchanged at 3.75 per cent so it could assess the impact of its earlier rate rises and those of the commercial banks on the domestic economy.

On February 2, the central bank board surprised financial markets with its `hold’ decision, when most investors had bet heavily on a hike to four per cent.

ICAP economist Adam Carr said the minutes suggested a March rate rise was still on the cards.

“It’s still quite a hawkish statement and they’re making it clear they’re going to tighten again,” he said.
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The Reserve Bank of Australia (RBA) left the cash interest rate unchanged in February so it could assess the impact of its earlier rate rises and those of the commercial banks on the domestic economy, the latest board minutes reveal.

On February 2, the central bank board surprised financial markets by leaving the overnight cash rate steady at 3.75 per cent following its monthly meeting.

“In considering the level of interest rates, members noted that the three increases in the cash rate late in 2009, together with the widening in the margins between the cash rate and many lending rates, had meant a material adjustment to the stance of monetary policy,” the minutes said on Tuesday.

“Members judged that monetary conditions were no longer exceptionally accommodative, though the structure of interest rates was still somewhat below average.”
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The Reserve Bank of Australia (RBA) has again warned that interest rates will likely rise further this year, lifting its forecasts for both economic growth and inflation.

But financial markets are not overly confident that another increase in the official cash rate will happen anytime soon, suggesting homeowners may be able to breath more easily for at least a couple of months.

The central bank released its quarterly monetary policy report on Friday, expanding on this week’s post-board meeting statement by governor Glenn Stevens when the cash rate was unexpectedly left at 3.75 per cent.

“Looking forward, if economic conditions gradually strengthen as expected, it is likely that monetary policy will need to be adjusted further over time to ensure that inflation remains consistent with the target over the medium term,” the RBA said on Friday.
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First home buyers will find it harder to get a foothold in the residential property market this year as supply dwindles and interest rates begin to bite, analysts say.

Interest rates are still expected to increase by at least one percent point this year, despite this week’s pause by the central bank, economists say.

Established house prices are expected to continue strengthening and the generous government first home buyers grant has been wound back.

The Reserve Bank of Australia (RBA) on Tuesday surprised financial markets by leaving its key cash interest rate unchanged at 3.75 per cent.

Economists say the respite for borrowers is likely to be shortlived, with many predicting four separate 25-basis point increases in the coming months.
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The Australian bond market closed firmer on Tuesday as investors began considering the outside possibility of interest rate pause by the central bank at its upcoming February board meeting.

At 1630 AEDT, the yield on the Commonwealth Government April 2020 bond was at 5.548 per cent, down from Monday’s close of 5.574, while the yield on the May 2013 bond was at 5.046 per cent, down from 5.053 per cent.

On the Sydney Futures Exchange, the March 10-year bond futures contract was at 94.440, up from Monday’s close of 94.400, while the March three-year bond futures contract was at 94.900, up from 94.870.

FIIG Securities head of strategy and market development Stephen Nash said bonds had rallied as investors reassessed whether the Reserve Bank of Australia (RBA) would continue with its monetary tightening policy when its board next met on February 2.
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Official interest rates could hit six per cent by the end of 2010, as Australia’s economic story enters a new chapter of higher inflation.

Analysts say the recent run of positive data, including Thursday’s record-breaking jobs report, point to an economy that is speeding up faster than many policymakers and market players had anticipated last year.

TD Securities senior strategist Annette Beacher says the latest unemployment figures show the economy is speeding up with less spare capacity than previous economic upswings, potentially putting upwards pressure on inflation and therefore interest rates.

Ms Beacher says there is a risk the Reserve Bank of Australia (RBA) will push the cash rate from its current expansionary setting, through the “neutral” range of 4.5 to 5.0 per cent, and into restrictive territory by the end of the year.
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Interest rate rises are on the way; so should you brace for the variable hits or cover your back and lock in a fixed rate?

As the economy turns a corner, economic commentators are in two minds about whether borrowers should fix their mortgage at a relatively high interest rate or sign up for an historically low variable option.

Economists predict we are looking at a fourth consecutive rate rise after a surprise surge in jobs on Thursday showed yet again the strength of the Australian economy.

The national unemployment rate fell to an eight-month low of a seasonally adjusted 5.5 per cent in December, down from a revised 5.6 per cent in November.
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The board of the Reserve Bank of Australia (RBA) will get together four weeks from now to decide whether to raise interest rates again.The futures market gives it about a 50-50 chance, but signs of anxiety in money markets could give the central bank an incentive to give borrowers a stay of execution.

After three rapid-fire increases in October, November and December, lifting the cash rate to 3.75 per cent, from the 49-year low of 3.0 per cent sustained from April to early October last year, the pressure is off the RBA.

The ultra-low level was employed to counter the risk the world’s financial markets would remain in the state of paralysis that set in after a rash of major corporate failures - most notably US investment bank Lehman Brothers - in the second half of 2008.
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Small lenders are now offering variable rates at up to one per cent lower than major banks, allowing mortgage holders who make the switch to save hundreds of dollars each month,
Australia’s largest independent mortgage broker says.

Loan Market today said the margin between banks’ standard variable rates and other low variable rates had returned to 2007 levels.

Loan Market Group Chief Operating Officer Dean Rushton said it was now possible to get variable rates that were not introductory rates at up to one per cent below the major banks’ standard variable rates.

The one per cent variance translates to over $200 in monthly savings on a $350,000 loan at a 25 year term, he said, and homeowners seeking to ease repayment pain should consider their options.
“Consumers are now in a very good position to seek a lower rate on an existing home loan to make their repayments a little bit easier,” Mr Rushton said.
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The Reserve Bank of Australia (RBA) is tipped to raise interest rates for an unprecedented fourth straight meeting in February, after a rapid improvement in Australia’s economic position in recent months, economists say.

But the RBA has left itself room pause in 2010, after the minutes of its December 1 board meeting showed its most recent rate hike was “finely balanced” between positive economic developments and fears that confidence could be dented.

“They (the board) weighed the potential for adverse effects on confidence of a further adjustment at this time, the continuing uncertainty over the international outlook given conditions in the major economies, and the high level of the exchange rate,” the minutes of the December meeting, released on Tuesday, said.
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Federal employment Minister Julia Gillard has shied away from speculating on another interest rate rise in February on the back of Thursday’s positive jobs figures.

But she has once again reminded Australians that rates will not stay at what have been called “emergency levels” forever.

Positive figures for Australia’s jobless rate have increased the odds of the Reserve Bank implementing a fourth consecutive interest rise when it meets in February.

“I won’t speculate about what they may or may not do in the February board meeting,” Ms Gillard told ABC Television on Friday.
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Consumers can expect banks to continue breaking ranks from the interest rate decisions of the Reserve Bank of Australia (RBA), according to a leading mortgage broker.

The RBA this week boosted the official cash rate by 0.25 per cent to 3.75 per cent but Westpac, the Commonwealth Bank and ANZ all hoisted their standard variable rates higher than the central bank’s increase.

Loan Market Group Chief Operating Officer Dean Rushton said the unwelcome trend of banks breaking ranks from the RBA was likely to carry on during 2010.

“Major banks no longer seem to be moving in line with the RBA, which is a development of great concern to mortgage holders,” Mr Rushton said.

“Based on this development, it is imperative that the RBA now pause and assess the impact of its three consecutive rates rises.
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A “bubble” may be forming in global markets due to the very low base rates of interest put in place during the financial crisis and regulators must act quickly to unwind the stimulus, a central bank board member has warned.

Reserve Bank of Australia (RBA) board member Warwick McKibbin, who will be taking part in a bank meeting on Tuesday to discuss domestic monetary policy, said historically low rates were creating a “big problem” for major economies whose currencies were pegged to the US dollar.

“This is a very distortionary policy,” Mr McKibbin told an economic symposium hosted by the Whitlam Institute on Monday.

“It’s necessary, given the macro economic situation that these countries face, but it is a situation that needs to be unwound very, very quickly, not only in these economies, but also because many economies in the world are pegging to the US dollar.

“So the monetary policy in these countries, these developing countries, is the US monetary policy.”
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