RBA Rates Decision – March 2010

Today the RBA announced an increase in the cash rate of 0.25% to bring the cash rate to 4%.  This is the first increase in 2010 and follows three consecutive increases in late 2009.  The RBA decided to increase the rate based on positive economic news within the Australian economy, led mainly by the improvement in the level of unemployment.

The focus now shifts to the banks in regards to what they plan to do with their own variable interest rates.  Will Westpac increase their rates by less 0.25% to bring them back into the market or will they pass on the full amount to borrowers?  What will the other Big 4 do? It’s fair to say that over the past few months liquidity has freed up more and more, however still at a slow pace, which shouldn’t allow for any justification for increases on the grounds of ‘cost of funds’, as that argument is starting to wear thin.

Expect those lenders who will match or potentially undercut the RBA rate to hit the market first with their media announcement trying to win over borrowers, and the lenders who have bad news for borrowers coming out late this week or even early next week to avoid the media spotlight.