Interest rates rises 'set to continue'

Interest rates could continue to increase despite the Reserve Bank of Australia signalling that it will hold the official rate steady at 7.25 per cent, it has been reported.

News.com.au states that individual lenders have pushed their rates up over the "official" level, which set by the bank, since late in 2007.

And the trend is set to continue because, unlike the bank, they are governed by market forces and supply and demand.

With a global shortage of liquidity, therefore, lenders are more likely to increase rates if there is widespread demand for a limited amount of credit. It has also become more expensive for lenders to source funding, as around half of it has to come from overseas.

Steven Anderson, head of research at Infochoice, said: "The cost of money has just gone too high and profit margins aren't there.

"These costs have to be passed on to customers."

The site says this year, major banks have on average added 0.4 per cent to their official Reserve Bank rate for their mortgages.

Consumers with personal loans have also seen rises - although the site says they are better off compared to those with credit card debt or commercial borrowers.

However, higher interest rates are not all bad news - for some consumers, they are a positive boon, as savers with short-term deposits could benefit from "rocketing" rates.

According to the site, some savings accounts now offer rates of eight per cent without requiring deposits to be locked in for lengthy periods.

Australia's best savings accounts compared and reviewed.

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