RATE HIKES INEVITABLE
29 April 2022
WHY LENDING RATES ARE ON THE RISE DESPITE RBA CASH RATE REMAINING UNCHANGED
(ALTHOUGH RBA CASH RATE IS LIKELY TO INCREASE IN MAY 2022)
Whilst the RBA Cash Rate is a market indicator, banks are not sourcing their funds from the RBA at this rate.
The bank’s cost of funds is a complex situation unique to each of their respective positions, and the pricing of the various types of finance facilities they offer, be them fixed or variable, is not directly linked to the RBA Cash Rate.
Despite the RBA keeping the Cash Rate on hold, the banks are already factoring in increased cost of funds which is reflected in their pricing of fixed rate facilities such as equipment finance.
Whilst the variable rates remain relatively stable for now, they are expected to move upwards in the near future. There is typically a lag with variable rates compared to fixed, which are much more volatile and reflective of wholesale cost of funds and bank forecasts.
MAJOR BANKS CASH RATE FORECAST
In 2019, the RBA Cash Rate and corresponding fixed rates from the banks, began to drop, as we faced into the pandemic and the economic impacts began to be felt.
From late 2020 and throughout 2021 longer term fixed rates began to rise as successful vaccination trials were announced and vaccination rollouts gathered momentum.
This trend has continued into 2022, with fixed rates moving upwards another 60 points in the first two months.
CURRENT MARKET RATES IN PERSPECTIVE
Despite recent increases in the 3 and 5 year swap rates, when looking at the historical data, these rates are now just getting back to pre-covid years and historically are still low.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice.