Lending and Interest Rates

Can I Retire?
March 23, 2017
Autumn Newsletter 2017
March 24, 2017

Are Interest Rates on the Increase?

The Reserve Bank Australia (RBA) meets on the first Tuesday of each month (except January) to decide on the official cash rate target – the rate offered on overnight loans to commercial banks. It can decide to keep the rate the same, raise it, or decrease it. Banks don’t have to follow the moves the RBA makes, but many will adjust their rates after a change.

Predicting the decision of the RBA is very difficult, a recent poll of leading Australian economic commentators and fund managers highlights this point. Asked about the direction and timing of the next RBA change views differ greatly:

  • 10 suggested a 2017 RBA rate increase
  • 9 felt a RBA rate reduction would occur before the year is out
  • 12 expect rates to remain on hold in 2017 and increase in 2018 and beyond.

Many factors impact the decision to increase rates but independent of the RBA we have recently seen banks increase their lending rates which has a direct impact on their customers.

Overall the experts are mostly suggesting an increase to rates (in 2017 or 2018 and beyond), with that in mind and with many people holding large levels of debts it is important to:

  • Factor in the high possibility of your interest rates increasing in the shorter/medium term.
  • Build a cash buffer during times of lower interest rates, only 14% of households are in front of their repayment! Are you?
  • Avoid the trap of holding high levels of shorter term debt such as credit and store cards, pay these off first. When “honeymoon” interest rates expire these cards can hurt financially.
  • Keep your bank honest and have your loans reviewed regularly to make sure your interest rate is competitive, there can be significant savings in this space.

If you would like your lending reviewed or help in consolidating existing loan(s) please contact Acuity Advisers on Enquiries@AcuityAdvisers.com.au or phone 08 9322 1481.