Irrespective of whether or not the Reserve Bank of Australia (RBA) increase the cash lending rate, borrowers may face interest rate rises from their lenders. This is the word from the head of National Australia Bank.
The impact of the US sub-prime mortgage crisis has meant that lenders with exposures in that market may be forced to increase their lending rates to their customers to to try and cover downside on thier investment.
A liquidity squeeze experienced in the money market at present is directly due to losses incurred by investment funds in relation to the write down of assets in the US sub-prime mortgage market.
A liquidity squeeze means less credit in the market which generally translates to higher borrowing costs being incurred by the major banks. Once the banks decide they can’t or don’t want to carry the extra costs any longer, they will recoup their losses from customers in the form of interest rate rises.
Whilst an interest rate rise is yet to be confirmed and conditions in the money markets may return to normal, continuing decreased confidence in the US sub-prime market (and assets associated with this market) may result in bank interest rates being increased in the next few months independent of any RBA announcement.
All a bit confusing but watch this space.
Cheers,
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September 22, 2007 at 5:49 pm
In the U.S. interest rate are going lower, Gold is going higher, Oil is going higher, inflation is going higher, the dollar is going lower. What is wrong with this? Everything! At some point the FED is going to have to raise rates bigtime. We are in a very, very, precarious situation at the moment. I think Gold will tripple to over $2,000 an ounce when the market finally wakes up and sees the real inflation. Last I checked a lower dollar = higher import prices. There is no inlfation deflator here. With commoditioes on fire you can forget about that. Bernanke should have never lowered rates last week. However, the Fed might be doing something that few have talked about. Maybe the Fed has abandoned the dollar the crush teh trade deficit. Good luck, it will take 20 years to correct our 6% of GDP trade deficit and move it back to under 1% of GDP, unless you want to seriously disrupt the global economy. We are in for tough times people. Very tough!