FIIG Securities director of education and research Liz Moran told Nest Egg she doesn’t see the official cash rate moving any time soon, but mortgage-holders could still be hit with a proxy rate hike.
She explained that despite the cash rate not moving since August 2016, the bank bill swap rate (BBSW) has spiked recently. The BBSW is essentially the rate at which banks borrow and lend between each other. It recently spiked to 1.6 per cent over the cash rate from where it usually hovered around 0.25 per cent over the cash rate.
“That, in essence, will feed through to variable rate loans and new fixed rate housing loans. So you're almost getting a cash rate hike from the banks through that increase in the bank bill swap rate,” Ms Moran said.
“That's happened because we're seeing the US increase short-term rates. All the major banks here are big borrowers of US dollars, so it's costing them more so they're charging each other more to lend and borrow.”
This in turn means Aussie borrowers will suffer the impact of higher rates, even if a Reserve Bank-led hike doesn’t transpire.
“If you're a borrower, it will hurt,” she told Nest Egg at the FIIG high yield conference.
Ms Moran said term deposit rates will also “hopefully move up” as banks seek out the cheapest markets.
“If the term deposit market in Australia then becomes the cheapest market, they'll try and borrow more from that market, and they might put the rates up,” she said.
“We've seen some evidence of that already through our [term deposit brokerage] business. Some of the smaller credit unions and the smaller banks certainly are going to be hurt by that, with the bigger top four coming out with higher rates.”