Australian Banks Out of Step with RBA

Australian Banks Out of Step with RBA

It has become quite apparent the major banks have an issue with the cost of funding, as bank funding continues to rise*.

Market chatter suggests that when the Reserve Bank of Australia “RBA” meets on Tuesday 7 February, the cash rate will be reduced by another 0.25 points to 4.00%.

Now we hear that the banks are suggesting that, due to the increase in the cost of THEIR funds, they may not reduce interest rates in delayed unison with the RBA.

Instead, we hear that they are looking to set their interest rates independently of the RBA! 

This makes current fixed interest rates look very attractive right now.

From a personal and business point of view fixed interest rates are generally below the current variable interest rates, so it may be worthwhile considering a fixed interest rate at the moment.

We are also finding that many small business owners who have been with their bank for some time have experienced an upward creep in their interest rate margin. This means that a fresh look at your current loan facilities could save you thousands a year.

A simple phone call to Finance For Life, on 1300 88 95 11, will give us a general idea of your financial circumstances so that we can suggest what is possible to improve your current financial position.


*It is the cost of raising funds through Bank Bills and One Year Swap interest rates that have increased the cost of raising funds, as banks no longer rely on investors.
They also raise funds from the stock market in the form of tranches of money – that is investor funds through insurance companies with superannuation funds. This allows them to add a margin to the cost of those funds raised and on lend to the public. 
The general perspective is that there will be a global recovery as many countries are set to grow. This has raised the investment return and therefore raised the cost of funds to the banks, and in turn increased the cost of funds to the public. This is why the banks are not necessarily following the RBA.
A common fallacy is that people think the RBA set interest rates for the banks. They do not!