Melbourne Cup Rate Race
In this week's column, Mark Bouris explores the possibility of an interest rate cut by Melbourne Cup day
The battle of the banks continued last week with a myriad of flashy deals and discounts from NAB, Westpac and CBA. The big banks have been at each other throats in an effort to wrestle customers and market share from each other, and the competition is to the benefit of mortgage holders. I've received a number of emails this week from readers telling me that they've approached their lender to get a better deal. Good on you for making a move and keep those emails coming.
If you haven't approached your lender yet, it's worth making the call. The banks are in the midst of a pricing war in an effort to hang onto customers, which puts mortgage holders in the driver's seat for the time being. But it won't last. European economic conditions have been declining, which means financing will become more expensive and the banks will have to find a way to recoup costs incurred.
The battle of the banks dominated news headlines last week, but it looks like the media aren't the only ones taking notice. Last Tuesday, the Reserve Bank left interest rates on hold for the 11th consecutive time, but the language the RBA used to explain current economic factors has changed dramatically from previous months. In the RBA's statement on monetary policy, Governor Glenn Stevens explained, "... that financial conditions have been easing somewhat, with interest rates for some housing and business loans declining slightly due to increased competition and the fall in some funding costs in financial markets."
This is hardly surprising, but it is the first time we've seen the RBA hint towards a potential rate cut. The statement goes on to outline a number of factors that could contribute to a drop, including dismal consumer and business confidence, continued economic stagnancy in the US and Europe, rising unemployment, slowing near-term growth and an exchange rate decline. What a difference a year makes.
Last November, jaws dropped across the country as Melbourne Cup Day delivered a harsh and unexpected blow in the form of a quarter per cent rate rise. Today we're looking at a very different scenario as inflation figures are tipped to come down closer to RBA's target of two to three per cent when the September quarter data is released on October 26th.
If CPI drops as expected, a rate cut for Melbourne Cup day would be a good bet. My advice to you is to keep an eye on rates and make sure yours is in line with what's out there. If the RBA drops the official cash rate, variable rates for mortgages will be likely to come down next.
* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on firstname.lastname@example.org with any queries you may have or check www.ybr.com.au for your nearest branch.
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