What you should be paying on your borrowings (and getting on your cash)
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Hello and welcome to the Australian's Money Puzzle podcast. I'm James Kirby. Welcome aboard, everybody. I think it's time to get serious, really, about interest rates and where they're going and how much you may have to pay on any loans you have in the near future. I mean, there may be some useful sort of counterbalance to that, how much you get on your cash in the near future, too. But we have a clear sense, right, at this stage that there is more rates... Rate rises to come. More than one voice saying that now. Several key people suggesting loudly basically in the public arena that there should be two to three more. Rate rises to control inflation in Australia. How much should you get right now on your cash?
How much should you be paying on a lending arrangement, whether you're doing that for your mortgage or as an investor in property? Let's talk to Sally Tindall. She's the Data Insights Director at Canstar and a regular on the show.
What are the implications of rising interest rates on loans?
How are you, Sally?
I'm good, James.
How are you? Good, thank you. Thanks for coming on this morning. I mean, what do you think about that, first of all, that you might say emerging consensus that we have more rises ahead of us than we might have previously thought?
Yeah, it's an interesting one because the RBA is in a very difficult position at the moment. They already had an inflation problem on their hands. Inflation, they never got the genie back into the box. And now the war in Iran has really put a rocket under what was already a plan to hike. You turn back to rate hikes and continue with that. So we've seen two rate hikes already, one in February, one in March. Westpac's economic team now forecast in three more, that would take our cash rate to, what, 4.85%. That would be the highest setting since, what, 2008 when we were coming back off the GFC. It would be an extreme setting given the circumstances. There's no guarantee, though, that will happen. There is broad consensus that we will see at least one more in the meeting that's coming up in about two weeks' time.
But the RBA is really struggling with a conundrum here because they're ramping up the screws on households, right? Households with a mortgage, that is, in order to stop us spending. But really, when you look at things like consumer confidence, which is at the lowest or the fourth lowest setting... Since the records began, and I was looking at the ANZ data just before, I think it's since the 70s, right? It's incredible to see we've already shut our plastics. Households have already zipped them up tight because of the unknown that's coming from the war because of the higher petrol prices. So it's really interesting to see the RBA opt to hike the cash rate. to control inflation when the inflation problem now has shifted to a supply-side problem rather than a demand-driven problem.
Well, one of the things I suppose that people want to know listening to the show is basically to translate this sort of macro picture into everyday finance. And I'm wondering whether the banks... In this atmosphere of escalating rate rises, are they generally putting through on the lending side, are they putting those rates through faster, those rate rises faster and more comprehensively than they are putting them through on the cash side where you might actually get some benefit from it? Is that happening? Is that the case?
Yes and no. It's a bit of a game with the banks. So they've passed on the two rate hikes we've already had this year in full to their variable borrowers, right?
How can savers benefit from higher cash rates?
That happens about 10 to 14 days after the RBA announcement, up goes the rate. When we saw those rate hikes, the 13 rate hikes in 22, 23, what we saw back then was banks would pass it on in full to their existing customers, but then discount. for new customers. So there was a little bit of discounting and quite a lot of competition in the market at that point in time. We're not seeing it this time around. We're not seeing that new customer discount creep into the rates that we're seeing across the board. One or two, here or there, but across the board, we're seeing just the banks pass it on in full to their variable borrowers.
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