Why are interest rates rising despite what the RBA does?

The global economy is looking better than it did a year ago. The turning point was around the end of last year. While it doesn’t seem to have picked up further recently, neither is this expansion a flash in the pan. That is positive news for the Australian economy.

When banks overseas raise their rates, lenders here suddenly face higher wholesale costs which are then passed on to customers.

This is one reason why Australian lenders have this year increased rates independently of the RBA’s strategy of keeping rates on hold.

As a nation, we are borrowing far more than we are saving so banks need to get funds to make up for the shortfall.

About a third of the major banks’ funding comes from the wholesale markets, almost all of it from overseas from countries like the US.

Although it is unlikely interest rates will rise in the short term, it is prudent to review your personal situation, to ensure you are protected should circumstances change.

 

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group