Fears abound over coming rate rise

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While the majority of stakeholders appear to agree with the RBA’s decision yesterday to maintain the official cash rate at 3%, there are worrying murmurs of an interest rate upturn in the near future.

RateCity CEO Alex Parsons warned that the current falling interest rate environment could be ending.

“One of the barometers of interest rate directions is fixed home loan rates and while we are still seeing some fixed rates falling, their descent has slowed significantly, which could be a sign of lenders expecting funding pressure to stabilise or lift in the near future.”

Real estate agency Laing+Simmons general manager Leanne Pilkington said talk in ‘some circles’ of the next rate movement being upward fails to take into account the fact that consumers are still not spending.

“On the ground, the case for a near-term increase in rates is unfounded. Retailers are still doing it tough and there is heavy discounting occurring across the retail sector… From a housing perspective, transactional activity is ticking along with encouraging, if unspectacular, results,” she said.

Pilkington added that the market is heading into the traditionally more subdued winter selling period and believes the next movement in rates should be downward to support the market over this time.

HIA senior economist Shane Garrett argued that despite the 175 basis point reduction since late 2011, the discounted variable mortgage rate has only decreased by 140 basis points – or less when it comes to lending rates for small businesses – and that means the onus remains on banks to cut rates independently of the RBA.

“With the RBA’s own research indicating a fall in the banks’ wholesale lending costs over the past few months, the time for lenders to pass on the full RBA cuts is long overdue.”

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