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Banks drop rates despite RBA rate hold

By Domenic Belfiore

5 August, 2014

The Reserve Bank of Australia (RBA) announced today that it would leave interest rates at 2.50 per cent for a twelfth straight month and continue the longest and lowest period of rate stability in decades.

Despite a full year of rate inactivity from the RBA, lenders were lowering the interest rates on their products and competing heavily for customers.

Loan Market director Mark De Martino said fixed rate products were seeing the biggest drops with more than a dozen lenders making significant changes to three, four and five year fixed terms.

“A couple years ago, I doubt anyone would have thought you could have got a fixed rate below five per cent for five years. While it’s certainly an attractive rate now, there’s wider implications borrowers need to consider before they take up fixed rates,” Mark said.

Some of the most important considerations are the direction of interest rates and the possibility that home owners could save more if rates fall again in the future and the break costs involved to exit your existing loan.

“Whilst fixed rates do not move up and down in sync with the cash rate they are indicative of what lenders think it’s going to cost to borrow money in the future – seeing so many move rates down is further evidence to support the perception that interest rates may remain low for quite some time,” he said.

Mark said the RBA was promoting stability within the economy by keeping rates steady and that the persistently high Australian dollar was something the RBA was very concerned about.

“The minutes from past RBA board meetings shows the board is moderately comfortable inflation as nears the top of its targeted range but the high Aussie dollar is exerting pressure on many areas of the economy, including house prices,” Mark said

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