Interest Rates Up! – Reserve Bank or Big Banks

According to statistics, the Australian economy is doing well and depending on economic figures released shortly interest rates look like rising soon but there are still many households that can’t afford to make higher debt repayments.

The good news is that Australia is weathering the global downturn really well. It is the only major developed country to record economic growth last financial year. Aussie households and companies are still spending and expanding despite the financial crisis and recession in other countries.

Just when rates will rise again in this cycle is a hot topic of debate. Some forecasters have tipped as early as next month others don’t expect a move until next year. The interesting debate is however who will be first – the Reserve Bank or one of the large financial institutions.

RBA Governor Glenn Stevens

If things were improving and it wasn't just a rhetorical 'if'; Stevens clearly had major uncertainties "there will come a time" when the exceptional monetary stimulus in place would no longer be needed.

"It will then my emphasis be appropriate for the Board to do what it has done on past such occasions, namely to start adjusting interest rates back towards normal levels."

"The timing and pace of those adjustments, if and when they come, will be a matter of careful consideration, taking into account all the relevant factors, including what might be happening with market interest rates."

Terry McCrann

Most economists and forecasters now appear to think an interest rate rise is likely before Christmas. According to Herald Sun economic commentator Terry McCrann, it would take something dramatic for the RBA to lift rates as early as October.

But the longer it holds off, the more likely the individual banks will increase rates independently, he says.

"If they could be confident the RBA would hike in October or even November, they would wait – aiming to slip in, say, a 35-40 point hike on the back of an official 25-point move," McCrann says.

"But if the clock ticks by and there’s no official hike, who will be first?"

For further insightful economic advice Terry McCrann can be engaged through Platinum Speakers and Entertainers for corporate events and conferences.

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