Rate Rise Strategy
As I sat and watched the ABC news on the 19th January 2022, an interesting report came on about the reserve bank raising interest rates later in 2022.
Bear in mind that earlier in the news, the ABC had just reported on the number of deaths, hospitalisation, and new cases of Omicron, the numbers for deaths and hospitalisation were the highest Australia had seen since the pandemic.
So, to what degree are we in an uncertain economy? Government "modeling" suggests we have approximately another week of increased cases of Omicron, and then it "should" plateau; this is on the East Coast of Australia, on the West Coast in WA, it's a very different story. In this morning's news, we see Premier McGowan has just announced that the state border is now closed indefinitely. The WA state government has a different view than the rest of the country. That's not new news!
Back to the news report about the Reserve Bank raising rates, the reporter interviewed the Westpac Chief Economist; Westpac had effectively led the story.
Fast forward to 21st January, two emails hit my inbox at 7 am, one from Westpac and one from St George. To my complete surprise (sarcastic part of the article), the email's headline, Rates Alert!
Westpac decided to increase it's Fixed Rates, 1 yr rate by 0.05% but the 5yr rate by 0.2%, the 2,3 and 4 yr by 0.1 and 0.15%.
The news story, the email of Rate Rise Alert, and the rate rise from Westpac, and St George made me think, does the dog wag the tail, or does the tail way the dog?
In Westpac's case, did the business decide to increase rates (for reasons of profit), so they had the Chief Economist put out a report noting their belief the Reserve Bank would increase rates, or did the Chief Economist put out the report and the bank react by increasing its rates.
Banks will move early to increase their fixed rates. We have seen noticeable increases across all lenders' fixed rates in Quarter 4 2021. This trend in interest rate rises may well be the start of the second round of interest rate increases.
On the global front, there are reports from the US suggesting we will see the Federal Reserve increase rates in 2022, at the same time we see China reduce rates, clearly China believe a rate increase would massively stall the global recovery, this at a time when the US is seeing increasing inflation.
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