Rate rises to stop rising rates?
Friday March 7, 2008
The behaviour of banks that are raising their lending rates beyond the increases of the Reserve Bank of Australia (RBA) are not just taking advantage of their customers. They're doing exactly what the RBA want.
The RBA is constantly having to repeat that they believe a tightening of fiscal policy is necessary to curb inflation and still maintain a reasonable level of growth. The target interest rate rises are a means of forcing change, but the RBA actually want the banks to act themselves. Only when this is the case can we expect to see the RBA letting up on rate increases.
If anything, banks will need to work harder to be competitive more than ever. With many unsatisfied mortgagees considering refinancing with other lenders, the banks will struggle to keep reliable borrowers. Reliability is what they will need, though, as while interest rates continue rising it becomes imperative that any new borrowers are not overextending themselves.
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