You may have seen coverage in the media over the past few weeks talking about Australian banks increasing interest rates. What you might not know is where this stemmed from given there hasn't been a dramatic turnaround in the Australian economy to really warrant an increase. Well I'm about to set the record straight by pointing the finger at Donald Trump. The correlation between the increase in rates and Donald Trump's election is uncanny and if you’re wondering how something over the other side of the world has affected your hip pocket continue reading.
Australians are net spenders. We spend more than we save. So if we spend more than we save have you ever wondered where all the money comes from when it comes to buying your home or to a lesser extent swiping that credit card. The short answer is overseas. Like us our banks have to borrow funds to keep the great Australian dream alive.
So what does Donald Trump have to do with all this?
The exact day of his election the cost of borrowing for banks increased and continues to do so. If you’re wondering why, I'd like to think it has to do with talking about building a wall, severing trade relationships or his policy. All in all his election has created uncertainty in global markets and one thing is for sure, you pay a premium for uncertainty. Personally, I think it is an overreaction by the market but who knows what this guy is going to do?
Now back on home soil Banks have jumped at the opportunity to start increasing interest rates to maintain profits. It makes sense given their obligations to shareholders but this still doesn't make it any easier to digest (no doubt there will be a "little" upside for them in this one). No real difference to when McDonalds bumped up the price of the 30 cent cone, funnily enough it probably pissed us off just as much. The lesson to learn here is that if it costs more to provide then smart businesses will make you pay more for it.
Like most Australians I have been happy riding interest rates down but the bottom had to come at some point. I'm not completely certain if this market activity will continue but what I do know is that Banks have started increasing their interest rates for new customers and it’s just a matter of time before you get a letter saying your rates have gone up (literally as I'm typing this I got an email from NAB saying they are increasing both existing and new customer investment loan rates by 0.15% - no doubt this is just the beginning). My advice is to potentially consider fixed rate loans if they fit into your lifestyle and to be savvy. Always look for something better because when it comes to home loans the grass is always greener.
Written on 03/12/2016