Growing Australian Consumer Confidence Could Support Rate Hike

January 19, 2017

Growing Australian Consumer Confidence Could Support Rate Hike

Consumer confidence in Australia has risen over the last four months. It has hit new highs since August of 2016. Roy Morgan’s Consumer Confidence Index, which comes from the ANZ bank, reveals that it has risen by as much as 4 percent, compared to the average for 2016.

The score, which now stands at 120.1, is also considerably higher than the average since 2010. During those years, the score stood at an average of 116.5.

Banks Have Already Moved, Independently of the RBA

Several Australian banks, starting with Westpac, have already raised their interest rates for home loans. This move was rooted in the shifting global economic landscape; the Federal Reserve in the US raised rates as a response to the anticipated increase in infrastructure spending by the Trump administration, causing the cost of capital funding to increase.

The hikes by banks were done without any indication that the Reserve Bank of Australia (RBA) was ready to raise their rates. Despite the increase by banks, consumers have comfortably been increasing their spending. One thing that may have helped raise confidence is the interest rate cuts made last August. At that time, the RBA reduced their rates to a record low, making it easier for consumers to make purchases for their homes.

Westpac Bank

This Optimism May Be the Final Straw for the RBA

With the improved economic outlook, it is doubtful that the RBA is going to make any further rate cuts. Instead, it is more likely that an increase is on the table, if not soon, then later this year. The Reserve Bank considers the Consumer Index as one of its determining factors when making decisions about its rates.

Borrowers Are Seeking Fixed Rate Home Loans

Some banks in Australia have already raised their rates for as many as 200 different home loans. An increasing number of loans, are fixed rate loans. This increase in fixed rate loan offerings is due to the consumer’s expectation of the likelihood that interest rates will be raised in the very near future. Whenever rates are increased by the RBA, it affects the rates of variable loans products, so there is a higher demand as homeowners refinance to get a fixed rate component to their mortgage, thus locking in predictable repayments.

Everyone’s eyes will be on the Reserve Bank’s next meeting to see if it will also raise its rates. Many banks and people think that it is possible, but it remains to be seen. The meeting is scheduled to occur on Tuesday 7th February.

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