There are growing signs that the Reserve Bank's next move in official interest rates could be upwards, as St George Bank, Bank SA and Bank of Melbourne – each of which are owned by Westpac Banking Corp (ASX: WBC) – have each pushed up their fixed interest rates.
The three banks have increased the rates on three-year fixed loans by 0.14 percentage points to 5.24% (although a number of customers are eligible to a discount which takes that rate to 5.09%). The move follows that of other home loan lenders, including the big four banks which raised their fixed rates late last year. Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd's (ASX: NAB) Homeside group and Westpac each increased rates by 0.2 percentage points on their three-year fixed loans.
Although fixed rates are not directly linked with movements in the official cash rate like variable rates are, they give a good indication of where lenders believe the RBA will move in the future. The Australian Financial Review quoted Paul Smith, a spokesman for mortgage broking group Loan Market, as saying: "Fixed rates, generally, predict the long-term outlook for the cash rate and this reflects that we are likely at the bottom of the fixed-rate cycle and that banks are predicting that the cash rate will rise."
While a number of economists have forecast that interest rates could fall as low as 2% this year, a recent pick-up in consumer confidence and housing construction figures could mean that the rate-cutting cycle is over and that rates could start going up later this year.
Foolish Takeaway
The low-interest rate environment has helped drive the record profits recognised by the big four banks last year and boosted retail sales. Although the fixed rates of various lenders have increased, they are still low by historical standards.
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