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.

Get our top dividend stock FREE!

Based on the returns offered from term deposits, investing in the share market could deliver far greater returns. If you are looking for some stock ideas to add to your portfolio today, look no further than our #1 dividend-paying stock. Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.