Banks have reached a crossroad

Graeme Salt

This week, we have seen a series of announcements that will lead to tighter lending:

  • Westpac reversed their forecasts and have said that the next rate move will (eventually) be up
  • Macquarie Bank reduced their rate cut forecasts. They now say there will only be one more rate cut – whereas they had previously said two cuts
  • The Reserve Bank said that it was considering ‘macroprudential’ initiatives that can be used to calm down property speculation rather than simply jacking up rates


All but four economists believe the next rate move will be upwards. Those forecasting further rate drops are Bank of America, NAB, JP Morgan and Macquarie. Those predicting rate rises note that the world economy is strengthening. In our region, last week, New Zealand announced rate hikes.


But there are many reasons for arguing that our rates could drop further

  • We are facing a tsunami of job losses as the resources boom comes to an end (this week two of my clients told me they had been retrenched)
  • There is much debate about China’s economic outlook


But while the banks are at crossroads, home-owners have choices too

  • Fixed rates are at record lows – for many it might be time to lock in an interest rate
  • If interest rates are to rise, it is unlikely to be soon (Westpac say late 2015) and it is not likely to be by much. For some time, interest rates are likely to fluctuate rather than have sharp upswings.


Most household budgets will be able to cope with these changes.


Graeme Salt is a Sydney-based mortgage broker.  He can be contacted on 02 9922 5055