At this month’s RBA meeting and after much speculation and argument in the media the Reserve Bank have decided to leave rates on hold. It will now be interesting to see what lenders may do, as speculation has been rife that some lenders may move rates upward outside the RBA guidelines.
While I would not rule this out, it is my hope that competition in lending will keep any rate moves to a minimum - only the next few weeks will tell. With building approvals and lending in general in a slight decline in the past couple of months any lender that raises rates too early may alienate themselves from the market and lose some market share, which will make for a difficult decision on their part.
If some of the major lenders do move up outside the RBA guidelines it will likely see some strong competition from second tier and non bank lenders. Over the last few months these lenders have again been beginning to emerge as a stronger threat to the majors after a couple of years in the doldrums on the back of the Global Financial Crisis. In that light it will not be all bad news if the majors do move outside the guidelines because anything that makes those alternate lenders stronger will eventually mean we all reap the benefits of stronger lending competition. To keep that competition strong we need to move back to these alternate lenders so they can regain a position of strength.
Interestingly a lot of fixed rates have continued to rise slightly in the last month after a couple of months in decline so the lenders are obviously thinking there is still a bias toward rates continuing the slight upward trend for the short term future at least. Don’t panic too much if you see a couple of quick fire rate rises announced by the RBA in the coming months as they often do this to ‘Shock’ the economy into a controlled slowdown if they think it is gaining too much momentum. Similar to what they did late 2009 and early this year, only this time I don’t think we would see 5 or 6 rises as we did then. For that to happen our economy would really have to go into overdrive and currently we look to be on the path of a more subdued economic recovery.
This is also a reason that I think rises will be minor rather than major as the Australian and world economies are still in precarious positions and hitting borrowers with hard rises in rates now could tip the balance into a downturn, something the RBA or anyone else does not want.
So the prediction is, one or 2 rises over the next 6 months and more of a steady approach. There is still a chance that rates could even fall a little in that time if it looks like the economy needs a little push.
All in all, what we want and hopefully what we will get is a fairly stable market with just a little tweaking up or down in rates.
Below is the link to the RBA media release if you would like to read further.
http://www.rba.gov.au/media-releases/2010/mr-10-23.html
Until next month.
