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Fixed rates move higher for first time in 18 months

Each of the big four banks have recently increased their fixed rates, which may offer a hint as to what the Reserve Bank’s next move will be.

Whilst there has been much uncertainty regarding whether the RBA’s easing cycle has come to an end or whether there are further rate cuts to come in 2014, a rise in three-year fixed rates by ANZ (ASX: ANZ), NAB (ASX: NAB), Westpac (ASX: WBC) and Commonwealth Bank (ASX: CBA), as well as numerous smaller lenders, suggests that they believe rates could soon begin to climb again.

Three-year fixed interest rates have been on the decline since March 2012, but figures from the RBA show that they rose last month for the first time in a year-and-a-half. Michelle Hitchison, from rate comparison website Finder, said “It could be pointing towards the end of the interest rate downward cycle.”

On the other hand however, NAB economist Spiros Papadopoulos believes that the RBA will cut interest rates further next year. Westpac’s Bill Evans has also stated that he expects two rate cuts in 2014, which should occur in February and May, believing that the minutes from the RBA’s November meeting suggests that the central bank’s board “retains its easing bias”.

Of course, the RBA would need to assess the risk of causing a property price bubble should it consider cutting rates further.

Foolish takeaway

Currently, average three-year fixed rates are still lower than discounted variable rates, according to figures from Finder, but data from the RBA from October show them breaking higher for the first time since 2011. It will be an even greater sign that the easing cycle could be over should the fixed rates continue to move higher compared to the discounted variable rates.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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