October 12th, 2009 
Yong-Long Lai As you all should know by now… RBA has increase the cash rate from 3% to 3.25%
Sometime this week you should expect banks to pass all and potentially more of this 0.25% interest rate rise…
Most bank’s fixed loans should be going into negative margins as the market interest rate swap (i.e. the instrument that we use to provide fix rate to consumers) is moving up too (i.e. costing more) This just means you can expect fix rates to be moving upwards too!
Obviously, on top of fixed interest rates going up the variable rate will definitely be heading upwards. Historically, the RBA don’t usually do single rate rise or rate drops. So since the RBA has announced the rate rise the market has kindly priced in about 50-75 basis points more in the next 3 months.
One thing to note is that you will be expecting competitive deposit rates in the market in the near future as banks compete to attract depositors funds. Reason for this is because as the financial market stabilise, people start moving their bank deposits into other asset classes such as shares and property which means banks will have to fund more of their balance sheet from the very expensive money markets.
Hint: Make sure you have enough access cash over the near term to cover for the increase in interest repayments!!
