Borrowers Cautious After Interest Rate Rise

It’s official then. Australians have taken a long hard look at the raft of rises in interest rates that have taken place between October last year and May this year – and they’ve reacted rationally.
According to an Australian Associated Press report, the Reserve Bank of Australia (RBA) says Australians have become more cautious about borrowing, following the interest rate rises.

Six Interest Rate Rises

The official cash rate (OCR), which banks and other financial institutions look to when setting their interest rates for loans, savings accounts and mortgages, has been increased six times from October 2009 and May this year.

The OCR is currently at 4.5%.

The RBA upped the official cash rate by 0.25 percent at the beginning of May. The National Australia Bank immediately moved to lift the interest rates on a range of its savings accounts.

RBA Notes Cautious Behaviour

Reserve Bank governor Glen Stevens says Australians are taking extra care with borrowing because of a continuing downward trend in the savings rate.
He says the prospect of regular rises ininterest rates could mean some Australians are vulnerable to sudden shocks, so they are being extra cautious with their finances.

He says “We see at present a certain caution in their behaviour – even though unemployment is low and measures of confidence have been quite high, consumer spending has seen only modest growth.”

Credit Card Interest Rates

Interest rates on credit cards also provide evidence of why Australians are being super cautious and making sure they don’t spend more than they have to in the current circumstances.
A survey of credit card rates shows that most are offering very attractive introductory deals, frequently 0% interest for the first six months. But if you look beyond the opening offers to the regular annual interest rates, then the picture changes dramatically. Annual rates range from 11.49%, through 18.49% – 19.99%, to an eye-watering 20.74%.
With the price of credit set that high, it’s little wonder Australians have reacted by slamming shut their wallets.

Consumer Spending Statistics

This is backed up by new information from the Australian Bureau of Statistics.

The Bureau says consumer spending in December dropped by 0.7% during the month to $19.3 billion. This compares with a November gain of 1.5%.

Department stores took the biggest hit. Sales in general fell by 3.5 per cent, while clothing retailers saw sales drop by 1.9 per cent, and food retailers registered a 1.3% fall in sales.

Interestingly, clothing and food sellers saw big gains inNovember, and during December spending at restaurants rose 2.5 per cent.