Interest rate cut and fixed rate costs

Hi all,

Any of brokers or others with info on what is likely to happen to fixed rate costs if there is a rate cut or two, or one large rate cut.

Will the fixed rates drop, or is the pricing about as good as it is going to get do you feel ?

 

Fixed interest rates are based on the interest rates in the futures market, plus a risk buffer, which is then based on a collective guess about interest rates will be in the future.

Hypothetically the RBA could cut rates and 'the market' does not change their expectations about future interest rates and as a result fixed rates stay the same.

But normally if the RBA cuts rates, 'the market' will use the one in the hand worth two in the bush principle and future expectations around interest rates will decrease, assuming the banks apply the same risk buffer then interest rates charged to consumers will decrease.

But to truly answer you question, no one has any idea what is going to happen to interest rates in the future (if you find someone who thinks they do, just have a look at their track record, it's normally the same as flipping a coin)

I know that probably does not answer your question but hopefully it helps.

(I'm a former CFA who made a career change to a Mortgage Broker)

 

Agree with Simon

Think about future interest rates in terms of the yield curve.

The truth is that there are many more factors than simply a bum CPI figure that play into it.

You let it lapse?

 

Yeah, I know there is no exact answer, proof is what is offered.

We can turn it into what *you* think may happen.

I think everyone, maybe even RBA, will be watching for what the election dishes up, RBA may be reluctant to cut much if Labour get's in as they are going to take a fire hose to a fire that is already out & they may want more ammo for further slowing of economy.

If RBA does cut, I feel the banks will feel they can keep rates the same, I have not watched what fixed rates have done in the past.

 

I'm 'retired', so I still pay every year but only $100 USD.

In my opinion, if the RBA cuts interest rates, fixed rates will decrease.

 

Fixed rates have slowly edged lower - with a number of lenders fluctuating on rates as they gain market share they taper the rates up, only to lower them again as demand falls off.

As mentioned the fixed rates act independently of the variable movements, but there is indeed fierce pricing competition at this time. When this ends the upward movement will likely be a sharp increase compared to recent history.

 

Do you think it we be fairly predictable when this sharp increase is coming?

 

The press will get a few more bookings for the announcement - do you know anyone at Fairfax or Mudoch papers? By then you'll be a few weeks too late.

 

The GDP is looking good, the unemployment rate is going down, so the CPI print alone in my opinion will not make the RBA cut, unless they materially change their projections in the quarterly Statement on Monetary Policy, which coincides with this upcoming board meeting.

And I have noticed Westpac's chief economist Bill Evans predicting no change in rates in 2016. I usually respect and comprehend his views and reasoning, he's one of the few economists who makes the right predictions including the first one to predict the rate cuts early last year

 

Having said that, interest swap rates have been going down since the deflation print was released.

It will make banks' fixed rate cost of funds cheaper, but I'm sure they'll want to keep some profit margin until one competitor makes the first move.

 

Well there is our cut, I think this one has been coming for a while & I think the .25 may not be the full story.

Myself I would be happy if they stayed at 2 for a longer period, the ammo can is running out.

Let's see what happens with variable and fixed rates for consumers.

 

ANZ 3.75% O/O 2 years fixed

 

I heard something briefly on the radio when driving today about NAB dropping rates ?

Brokers, do the NAB publish the fixed and variable rates for the products you offer on the web anywhere ?