Post to SinFongChanRE.wix on 16/1/2018 at 12:15 AM
Commenting on “Why interest rates are likely to rise in 2018”
http://www.theage.com.au/business/the-economy/why-interest-rates-are-likely-to-rise-in-2018-20180112-h0han1.html
We often hear the term official cash rate (OCR). The Reserve Bank sets the cash rate at 2.30 pm (Sydney) on the first Tuesday of each month except January.
What is cash rate and how does it affects mortgage interest rate?
Cash rate is the interest rate banks charge each other on overnight loans. Banks lend money to other banks each day to manage daily cash needs.
Cash rate influences other interest rates, such as bonds, term deposits, credit card, loan and mortgage repayments. RBA's rationale of having lower cash is to boost economic activity by encouraging consumer spending and business investment.
Banks require to borrow money from someone, including other banks, and lend it to someone else at a higher rate, so that the incoming interest payments exceed the borrowing costs.
Money may be sourced locally as well as offshore. More than half of banks' funding these days comes from depositors. These are people who put money in the bank and expect, in return, to be paid interest. By offering higher interest, the banks are able to attract more depositors.
When interest rates increase in a particular country, foreign investors may be more attracted to invest there. This is because the potential returns available on deposits or investments that earn interest have increased.
Since the global financial crisis, offshore wholesale lending has become significantly more expensive. Lenders now demand a higher rate of return to reflect a higher perceived degree of risk in lending their money.
I blogged on 12 December 2017 that the RBA will increase the cash rate by 50 point or 0.5% in 2018, taking it to 2.0%. ANZ and NAB share the same view, while CBA reckons the rise will be 25 point to 1.75%. Westpac does not share the optimism either the other banks or the RBA about the economy.
Will this increase eventuate?
The US economy is growing again, and in December, the US Federal Reserve (The Fed) has raised cash rates by 0.25% to 1.25%-1.50%, the third rate rise in 2017. The Fed anticipates three further rate increases for each year 2018 and 2019 respectively. Most Fed's officials expect the interest rates will be above 2% to 2.8%.
If we are to believe that Australian economy is sound and growing, the RBA will follow US rates, otherwise if the economy slips RBA may be forced to keep the cash rate unchanged or even cut it again.
Housing finance expert Martin North of Digital Finance Analytics told The Australian Financial Review, "Borrowers should assume we are at the bottom of the interest rate cycle – in fact we are probably already past it"
Thank you for reading.
Commenting on “Why interest rates are likely to rise in 2018”
http://www.theage.com.au/business/the-economy/why-interest-rates-are-likely-to-rise-in-2018-20180112-h0han1.html
We often hear the term official cash rate (OCR). The Reserve Bank sets the cash rate at 2.30 pm (Sydney) on the first Tuesday of each month except January.
What is cash rate and how does it affects mortgage interest rate?
Cash rate is the interest rate banks charge each other on overnight loans. Banks lend money to other banks each day to manage daily cash needs.
Cash rate influences other interest rates, such as bonds, term deposits, credit card, loan and mortgage repayments. RBA's rationale of having lower cash is to boost economic activity by encouraging consumer spending and business investment.
Banks require to borrow money from someone, including other banks, and lend it to someone else at a higher rate, so that the incoming interest payments exceed the borrowing costs.
Money may be sourced locally as well as offshore. More than half of banks' funding these days comes from depositors. These are people who put money in the bank and expect, in return, to be paid interest. By offering higher interest, the banks are able to attract more depositors.
When interest rates increase in a particular country, foreign investors may be more attracted to invest there. This is because the potential returns available on deposits or investments that earn interest have increased.
Since the global financial crisis, offshore wholesale lending has become significantly more expensive. Lenders now demand a higher rate of return to reflect a higher perceived degree of risk in lending their money.
I blogged on 12 December 2017 that the RBA will increase the cash rate by 50 point or 0.5% in 2018, taking it to 2.0%. ANZ and NAB share the same view, while CBA reckons the rise will be 25 point to 1.75%. Westpac does not share the optimism either the other banks or the RBA about the economy.
Will this increase eventuate?
The US economy is growing again, and in December, the US Federal Reserve (The Fed) has raised cash rates by 0.25% to 1.25%-1.50%, the third rate rise in 2017. The Fed anticipates three further rate increases for each year 2018 and 2019 respectively. Most Fed's officials expect the interest rates will be above 2% to 2.8%.
If we are to believe that Australian economy is sound and growing, the RBA will follow US rates, otherwise if the economy slips RBA may be forced to keep the cash rate unchanged or even cut it again.
Housing finance expert Martin North of Digital Finance Analytics told The Australian Financial Review, "Borrowers should assume we are at the bottom of the interest rate cycle – in fact we are probably already past it"
Thank you for reading.
