Record-low interest rate environment false, due to banks 'clawing back'

The head of one major aggregator says the idea that we're living in a record-low interest rate environment is inaccurate



The idea that we’re living in an interest rate environment on par with 2009 is inaccurate, according to 1300HomeLoan managing director, John Kolenda, due to banks ‘clawing back’ approximately 50 basis points over the last year and a half.

“They have since then had to reduce the cash rate by the same amount in response to a soft economy and subdued consumer sentiment.”

Kolenda’s comments come in a response to wide-spread speculation that the RBA may move upwards with its next interest rate decision. He says an improving domestic economy shouldn’t be a trigger for the RBA to consider lifting its official cash rate.

“While there are some positive signs in the market, there are equally as many concerns about the overall economy,” he says. “It’s premature to be talking up rates as this does not instil consumer confidence over the short-to-medium term.”

The RBA maintained its official rate at 3% at last week’s meeting, but Kolenda says he’s concerned by calls from some economic commentators for the RBA to lift rates again before the end of the year if there’s an upturn in the domestic economy.

#pb# “The RBA made a mistake after significantly cutting the cash rate during the GFC in 2009 by raising it too quickly. A lot of the problems we have experienced in the past two and a half years were caused by the RBA increasing the cash rate by 175 basis points to what it described as more normal levels between October, 2009, and November, 2010.”

Kolenda says consumers are ‘craving’ stability right now and argues that the RBA should play its part.

“The central bank has at least acknowledged inflation is under control and consistent with its medium-term target.”

However, he says consumers could still hope to see banks lower their mortgage rates slightly as they aggressively compete for home finance business.

“Considering the fact that they have clawed back some margin and the cost of funds is easing we could see one of the majors reducing rates to win over customers. With competition intensifying amongst lenders due to slowing demand, we could see their rates reduced slightly by five to 10 basis points over the coming months. The recent positive signs would deteriorate dramatically if the RBA steps in and increases rates again.”

“We are now just starting to see the benefit of those cuts flowing into the economy so it would be madness to see the RBA make the same mistakes again.”

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