The RBA might not lift interest rates for a while, but the sun is setting on the era of ‘cheap credit’
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Interest rates have been tipped to not be lifted by the RBA for years but perhaps the beginning of the end of “cheap credit” will be in June.
Interest rates were reduced to record lows as COVID-19 broke out and while there are varying estimations as to when they will rise again, virtually none are this year.
The RBA has refused to budge on its estimations even in spite of the housing boom that has been triggered by record low interest rates. It has pointed to wages growth and inflation as factors it will be watching closer and will likely move when they lift.
The RBA is meeting again tomorrow and interest rates are expected to remain on hold. As always, investors and economists will be watching their commentary, but particularly so this month as its Term Funding Facility (TFF) is set to end in June.
The TFF was first announced by the RBA in March 2020 to provide support to banks (Authorised Deposit Taking Institutions), encourage banks to still lend, and help reduce interest rates for borrowers.
It is set to wind up on June 30 and comparison website Mozo is tipping this could be the catalyst for banks to lift deposit rates and potentially some home loan rates.
And while markets won’t react in the same way they would to the mere hint of RBA lifting rates, this will be far more evident in individual people’s lives.
In fact, some banks already moved. Specifically, Suncorp and Summerland Credit Union lifted deposit rates this week and ING and CBA have lifted longer term fixed home loan rates.
Mozo Rates expert Peter Marshall thinks more will move in the coming months.
“It’s increasingly likely that we will see more lenders increasing fixed rates in the coming months. The end of the TFF and increasing expectation of inflationary pressures, which could also see central banks eventually having to increase rates, longer term rates are no longer at their all time lows,” Marshall said.
Of course the RBA giving interest rates a lift would be bad news for borrowers, but good news for savers.
Marshall said a lift in interest rates would be necessary to “adjust to the world without the RBA’s cheap credit”.
“While this incredible low cost of credit has given undeniable benefits to borrowers, if you were one of the many Australians relying on getting a return on cash you have in the bank, the past year has not been one to remember,” Marshall said.