Believe it or not when we borrow money from the bank, we are normally borrowing someone else’s money. And there is evidence that these people are going to demand that we pay a higher interest rate on our loans.
Banks and other deposit-taking institutions need to raise an estimated $125 to $135 bn this year – mainly from the global money markets. But there are signs the these investors are going to demand a higher return from the money they lend us.
Various factors are putting pressure on banks’ lending rates. For some, the advent of Donald Trump has pushed up benchmark borrowing rates; while for others, government regulations will make borrowing money more expensive.
At the same, with Australian inflation languishing at 1.5 per cent (way below the Reserve Bank’s target of two to three per cent) then it may be that domestically, there is a drop in base rates.
These competing pressures make it difficult for the borrower to know where rates are going. If one bank is more exposed to the global money markets than another does that mean they are more likely to raise interest rates?
If you want to talk about it more, please contact me on 02 9922 5055