The Reserve Bank returned from holidays and kept interest rates on-hold again.
But the RBA’s official interest rate is only part of the story for home loan customers and investors. The banks have shown they will do their own thing when it comes to interest rates.
In October, the major banks all raised their mortgage rates by about 0.20% even though the RBA kept official rates on-hold at that time. And the smaller banks were happy to follow by lifting their interest rates as well.
It was a double-whammy for investors who where already hit with interest rate increases in July. Read more about this here: Interest rates for investors
Will the banks lift interest rates in 2016?
Some experts believe it is likely.
Macquarie’s banking analyst, Victor German, last month predicted banks would engage in more interest rate “re-pricing,” which refers to raising their rates independently of the RBA. The other option for the banks is to hold back part of any RBA interest rate cut.
Victor German noted that banks’ profit margins are being squeezed by the rising costs of getting funds. Read more about this here: Banks funding costs
In the past, the banks have improved their profitability by passing on some of these extra costs to customers by lifting their rates. Even when the RBA doesn’t lift their official interest rate.
However, the risk for the banks is this may cause many customers to move to a cheaper rival, so the banks may not lift their interest rates any time soon.
They most probably will hold back part of the next RBA rate cut. And this effectively gives them an interest rate increase without the pain of losing customers. Victor German predicted they would “re-price” by about 0.10% to 0.15% during 2016.