Interest rate – John Hesch http://johnhesch.com/ Wed, 23 Nov 2022 08:49:41 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://johnhesch.com/wp-content/uploads/2021/07/icon-150x150.png Interest rate – John Hesch http://johnhesch.com/ 32 32 Raising interest rates is not the best antidote to inflation https://johnhesch.com/raising-interest-rates-is-not-the-best-antidote-to-inflation/ Wed, 23 Nov 2022 07:06:06 +0000 https://johnhesch.com/raising-interest-rates-is-not-the-best-antidote-to-inflation/ The National Bank of Rwanda defines interest rate as “the rate at which interest is paid by borrowers for the use of money they borrow from a lender. Specifically, the interest rate is a percentage of the principal paid to a certain rate For example, a small business borrows capital from a bank to purchase […]]]>

The National Bank of Rwanda defines interest rate as “the rate at which interest is paid by borrowers for the use of money they borrow from a lender. Specifically, the interest rate is a percentage of the principal paid to a certain rate For example, a small business borrows capital from a bank to purchase new assets for its business, and in return the lender receives interest at a predetermined interest rate to defer the use of the funds and lend them out instead to the borrower.” Interest rates are normally expressed as a percentage of principal for a period of one year.

Recently, the national bank increased the lending rate (rate at which the national bank loans to commercial banks) from 6 to 6.5% with the aim of curbing inflation and preserving consumers’ purchasing power. Consumer purchasing power roughly refers to the ability of consumers to buy goods and services given their income. The National Bank increasing the rate at which it lends to commercial banks means that commercial banks will also increase the rate at which they lend to individual borrowers and businesses by shifting the burden onto consumers. The implication of an increase in lending rates is an increase in the cost of borrowing and, therefore, of investing. Lending rates are usually adjusted to reduce or increase the money supply within an economy.

Although raising the lending rate is a common monetary policy intervention to help ease inflationary pressures, it is not the most appropriate in the current situation and here are a number of reasons;

For starters, the global shutdowns that followed the outbreak of the coronavirus disease have severely disrupted the production of goods and also strained global supply chains.

As the world recovered from production and supply constraints caused by the Covid-19 pandemic, the RussiaUkraine war in Eastern Europe erupted and Western sanctions against Russia that followed the war, further aggravated production and supply chain constraints. Given the production and supply disruptions resulting from the lockdowns as well as the sanctions against Russia, commodities – mainly grain, oil and gas – have become very scarce. It is this lack of supply of goods that puts upward pressure on prices. The shortfalls in supply coupled with the high borrowing costs to produce (primarily and secondarily) raise the prices of already scarce consumer goods even further, which also lowers the purchasing power of consumers.

Second, the increase in lending rates increases the cost of investment, which reduces the possibilities for expanding the productive potential of the economy. Since there is already a limitation on the import of certain goods used in the production of other goods (secondary production), the increase in the interest rate stifles the ability of investors to invest in labor, equipment and all necessary infrastructure. Denying the economy, the ability to expand production in a supply-constrained global economy will eventually drive prices up even further in the long to medium term, as the already unmet demand for goods continues to rise.

High interest rates, while increasing investment costs, also increase the cost of labor, which exposes the economy to employment contractions. In the long run, as the economy becomes unable to expand its productive capacities, job opportunities diminish. A decline in employment will push the government to subsidize the consumption of an unproductive population (unemployed labor force).

Since the upward pressure on prices is the result of a huge balance between demand and supply, an attempt to lower demand without a large increase in supply will not cause significant changes in the price. purchasing power of consumers.

How best to deal with the problem?

Since rising prices are the result of supply shortages, which also result from global supply chain constraints, any policy intervention should aim to ensure adequate supply of goods that are in high demand.

Efforts that ensure domestic production, in sufficient quantities, of currently imported goods will protect the economy from any global developments that disrupt supply chains. Instead of increasing lending rates and discouraging investment accordingly, mechanisms should be put in place to allow willing investors to invest in the production of food products, machinery and equipment, building materials and fertilizers which represent the country’s highest import expenditure.

At the same time, the government would benefit from setting the lowest minimum or completely removing import duties on products with very high demand and those for which insufficient supply triggers price increases in other goods as a derived factor. Removing import duties will not only bridge the gap between supply and demand, but also prevent the government from spending heavily on consumer subsidies.

The government should, now more than ever, increase the national buffer stock. Increasing the country’s buffer stock capacity will give the government a strong position in situations where supply is severely constrained as is currently the case. A buffer stock is a reserve of one or more commodities that can be used to offset price fluctuations. With sufficient reserves, the government can release certain quantities of products in high demand to help control rising prices for those same products, thereby managing the situation without necessarily creating problems in adjacent areas of the economy.

In short, rather than monetary policy, current inflationary pressures require more fiscal policy interventions.

The writer is a final year law student with a passion for tech entrepreneurship and governance.

Copyright New Times. Distributed by AllAfrica Global Media (allAfrica.com)., source English press service

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Retail borrowers find bank interest rate hikes too steep https://johnhesch.com/retail-borrowers-find-bank-interest-rate-hikes-too-steep/ Thu, 17 Nov 2022 23:46:52 +0000 https://johnhesch.com/retail-borrowers-find-bank-interest-rate-hikes-too-steep/ Corporate interest rates are hovering around 9%, with both up around 2 percentage points since the start of this year. The State Bank of Vietnam has hiked interest rates twice since September, the most recent being on Oct. 24. Hien, a pension owner in the central province of Khanh Hoa, said the interest rate hikes […]]]>

Corporate interest rates are hovering around 9%, with both up around 2 percentage points since the start of this year.

The State Bank of Vietnam has hiked interest rates twice since September, the most recent being on Oct. 24.

Hien, a pension owner in the central province of Khanh Hoa, said the interest rate hikes have been a blow because on her VND5 billion ($201,600) loan, she has to pay 15 million additional VND per month.

She said she mistakenly thought the floating rate would only be 9.5-10.8% after the prime interest rate period ended.

She had borrowed to buy the guesthouse for rent to tourism workers in the city of Nha Trang for monthly rents of 1.5 to 2 million VND per room. But tourism in the city has not fully recovered from the Covid-19 pandemic, so the occupancy rate is currently only 50%.

To earn enough money to handle the higher interest payments, she has to run another small business transporting building materials, mostly steel. But structural steel sales fell 50% in October, so activity is also stagnating.

Hien wants to sell land, but has no takers since banks tightened mortgage terms. “I do my best to pay the bank interest in due time so that the loan does not become a bad debt and my collateral is not seized.”

Similarly, Tinh, in the southern province of Kien Giang, and two of his friends are struggling to pay extra bank interest because they borrowed to buy land nearly a year ago, but were unable to sell them afterwards. the real estate market collapsed.

He said: “I bought a piece of land at a price of 250 million VND per sao (equivalent to one tenth of an acre), hoping to sell at 300 million VND. Now I am trying to sell at 200 million VND… but no one is buying it.”

Tien, one of his friends, borrowed 800 million VND from a bank and another smaller loan from his relatives.

The interest he is supposed to pay has increased from 8% to 12.5%, and therefore the official’s entire salary is now used to pay the interest and part of the loan.

Tung, another friend of Tinh, currently works as a taxi driver from 7 p.m. to 4 a.m. to pay monthly bank interest of over VND 10 million and to make ends meet.

Hang, who owns a dragon fruit farm in the central province of Binh Thuan, has also been on edge for two weeks after interest on his bank loan of more than VND 1 billion increased.

She fears that the bank will seize her guarantee if she does not pay the interest in the coming months.

“I borrowed more than one billion VND two years ago, and the interest rate went from 7% to 13% on October 25. For a farmer like me, it is difficult to pay additional interest of several million dong per month, while dragon fruit prices sometimes drop to 2,000 VND per kilogram.”

The dragon fruit harvesting season hasn’t started yet, while Hang has no other sources of income, so she has to borrow money from her relatives and friends to pay the interest.

“Now I resort to selling several sao of land, even at 30-40% less than market prices.”

Explain the rise in lending interest ratesexperts said rates had fallen to low levels in recent years and are rising again, mainly due to increased demand for credit as the economy recovers.

Preferential interest rates for new retail loans with collateral increased from 9-9.5% to 11.5-13% in private banks and 11.5-12% in public banks.

Interest rates on unsecured loans are currently 16-25%.

Central Bank Deputy Governor Pham Thanh Ha said the interest rate hikes on deposits were helping credit institutions mobilize additional resources to ensure liquidity.

Many banks are worried that interest rates won’t come down anytime soon and are heavily reliant on cash, especially government spending.

A lot of money was absorbed by issuing government bonds, fiscal revenue exceeded target and government spending was slow, leading to a drying up of liquidity and pressure on lending rates, it said. they explained.

But the central bank assured that the money was still allocated to priority areas and that eligible companies, especially in production and trade, could access loans at preferential interest rates.

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Unsustainable 7% prime interest rate – Interest rates set to crash in 1-2 years https://johnhesch.com/unsustainable-7-prime-interest-rate-interest-rates-set-to-crash-in-1-2-years/ Tue, 15 Nov 2022 06:58:00 +0000 https://johnhesch.com/unsustainable-7-prime-interest-rate-interest-rates-set-to-crash-in-1-2-years/ Pee I love the old adage “everything in moderation”. The extremes on either side of anything are never sustainable, as seen in the image above of the woman holding the side of a mountain with one hand. With regard to interest rates in the economy, we can say the same thing. Investors should appreciate the […]]]>

Pee

I love the old adage “everything in moderation”. The extremes on either side of anything are never sustainable, as seen in the image above of the woman holding the side of a mountain with one hand. With regard to interest rates in the economy, we can say the same thing.

Investors should appreciate the importance of interest rates in the cost of servicing debt, particularly as measured by the size of the economy.

The US economy, and the world for that matter, has an inflation problem. The problem is precisely that the cost of living exceeds the rise in wages, creating what is called stagflation. The inflation rate in the United States is 7.76% in October 2022. Wages in October only increased by 4.72%.

One of the main drivers of inflation is the overall credit growth rate. The Federal Reserve Bank aims to raise interest rates or the cost of borrowing new funds in an effort to slow credit growth. This in turn will have a strong impact on the inflation rate on the monetary side.

The Fed raised rates very quickly and the US prime interest rate is now at 7.00%. This is the rate banks will charge their best customers for the cost of borrowing money. It is this rate that is a good exercise of how big the interest rate on money is relative to overall debt and the size of our economy.

Preferential rate

Preferred lending rate

Prime Lending Rate (St. Louise Fed FRED)

In December 1980, the preferential loan rate peaked at 21.50%! A year later, it would be 15.75% and a year later, in December 1982, it would be 11.50%, ie 10% less than just 2 years earlier. At almost any peak in the prime rate, the 1-2 year prime rate would be significantly lower.

Looking at the longer-term prime rate, since 1980, the bank loan prime rate has consistently experienced lower highs and lower lows. Today the rate is 7% and that is higher than the last high at 5.50% in 2019. So we have now broken those lower highs levels. It certainly sets a new paradigm for what’s to come, I think.

There is, however, a substantial difference this time around and it has to do with the amount of debt versus the overall economy, as I will try to elaborate.

Debt

When we look at debt, we have to look at the overall debt of the US economy. Mortgage debt, commercial debt, federal government debt as well as state and local government debt. Student loan debt, auto loan debt, and credit card debt. Add it all up and we have what is called “all debt securities and loans in all sectors”. The graph for it looks like this:

All Sectors Debt and Lending

All-Sector Debt and Loans (St. Louis Fed FRED)

In the 2nd quarter of 2022, it was 91.225 billion dollars. At a minimum, it’s probably increased by around 2% since then in Q4 2022. To estimate the current level of overall debt in the US economy, I would estimate it at around $93.05 trillion.

US economy – GDP

US GDP

US GDP (St. Louis Fed FRED)

US GDP was running at an annualized rate of $25.663 trillion in Q3 2022. I would estimate that in Q4 the US economy would grow 1.4% from Q3 which would put GDP at 26 .02 trillion in the 4th quarter.

Prime rate/debt/GDP

A good exercise to do is to see how the cost of prime rate money would compare to the overall economy or GDP.

I simply take the prime rate and multiply it against the overall debt of the US economy and compare that as a percentage of GDP.

First, I would like to show the magnitude of US debt relative to the US economy, as this plays a substantial role in the interest rate it can withstand.

Debt to GDP

Debt to GDP (St, Louis Fed FRED)

US debt stood at around 3.61 times its GDP in Q2 2022. This compares to 1980 when it was around 1.6 times GDP. Today, the US economy is highly indebted and its ability to service debt at high interest rates is not only unsustainable but impossible if rates get too high.

Everything is relative, so this exercise allows us to put the prime interest rate into perspective in relation to the level of indebtedness and the economy.

Prime rate/debt/GDP

Prime rate/debt/GDP (St, Louis Fed FRED)

It is in fact the cost of carrying the debt relative to the economy. It has been, frankly, well managed over the years. It fluctuated between 11% and 32.56% in the third quarter of 1981. It reached 26% in 1989 and again in 2000. In 2007, it reached nearly 29%. In 2019, it peaked at just under 19%.

In the 2nd quarter of 2022, it was 14.20%. In the 2nd quarter, the prime rate averaged just 3.93%, with the Fed just beginning to raise rates substantially and quickly. We are now in the 4th quarter of 2022 and the rate is 7.00%.

The bank prime rate at 7.00% today with debt of $93.05 trillion is about $6.51 trillion. With an estimated GDP of around $26.02 trillion in Q4 2022, that’s debt service of $6.51 trillion at around 25% of GDP by my exercise.

Conclusion

History suggests that such a high interest rate relative to an economy’s debt is simply unsustainable. Perhaps interest rates will peak in Q1 2023, but once they do, as has always happened in the past, rates will fall sharply to eventually ease the heavy burden of the cost of silver.

Inflation could very well fall to 2% easily. It looks like inflation is starting to come down, although wages are also falling. The two will fall in tandem, although wages could very well fall faster than inflation. What will matter will be household wages and incomes and their ability to keep pace with the rising cost of living. It’s a horse of another color.

In the markets, what goes up very quickly, goes down very quickly. Interest rates have risen very quickly and we could very well find ourselves soon enough where interest rates will drop very quickly as early as 6-12 months into the next year. The prime rate should return to a level where debt service is between 12% and 15% of GDP, which would put the prime rate between around 3.5% and 4% again. 7% today I think.

This is more or less what needs to happen to keep the economy buoyant given its indebtedness. A slowing economy and the destruction of demand will certainly prove to be a deflationary force that will help push rates down. The same goes for falling real wages which will help reduce inflation as demand will be forced to fall. This implies a lower standard of living compared to recent years.

Of course, anything is possible and policies can change. Rates could stay very high and defaults could also become the answer to lower debt and inflation, but lead to huge economic hardship in the process.

It should boil down to what is in the best interest of humanity and in this case, always in moderation.

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Good news for buyers. Bank of Baroda Reduces Interest Rate on Home Loans and Offers No Processing Fees https://johnhesch.com/good-news-for-buyers-bank-of-baroda-reduces-interest-rate-on-home-loans-and-offers-no-processing-fees/ Sat, 12 Nov 2022 05:12:14 +0000 https://johnhesch.com/good-news-for-buyers-bank-of-baroda-reduces-interest-rate-on-home-loans-and-offers-no-processing-fees/ The main public sector bank, Bank of Baroda, has cut interest rates on home loans by 25 basis points (bps) to 8.25% per annum from November 14, 2022. The bank will offer this rate of interest for a limited period. In addition, there will be no prepayment or partial payment fees for customers. In a […]]]>

The main public sector bank, Bank of Baroda, has cut interest rates on home loans by 25 basis points (bps) to 8.25% per annum from November 14, 2022. The bank will offer this rate of interest for a limited period. In addition, there will be no prepayment or partial payment fees for customers.

In a statement, Bank of Baroda said it was one of the lowest and most competitive home loan interest rates in the industry. This special rate is available until December 31, 2022. In addition to the 25 basis point reduction on the interest rate, the Bank is also waiving the processing fee.

The new rate starting at 8.25% per annum is available to borrowers applying for new home loans as well as balance transfers. This special rate is linked to the borrower’s credit profile.

Read also : Take a solidarity mortgage? Check its pros and cons first

Commenting on the offer, HT Solanki, General Manager, Mortgages & Other Retail Assets, Bank of Baroda said: “In a scenario where interest rates are on an upward trajectory, we are pleased to lower our interest rates on home loans and introduce a special interest rate offer on home loans at time limited 8.25%, making real estate purchases much more affordable for home buyers. »

“We have seen robust growth in home loans this year, with strong demand in all cities and consumer confidence driving home sales. Such an attractive offer on home loans will give an extra boost as people take advantage of this offer to fulfill their aspiration of owning their own home,” Solanki added.

Read also : Expensive home loans? You can still borrow around 8% – Check the latest rates

Key Features of Bank of Baroda Home Loans

  • Interest rate from 8.25% per annum for a limited period
  • No processing fees
  • Takeover of home loans with minimal documentation
  • Flexible duration up to 360 months
  • No prepayment/partial payment fees
  • Home service in major centers
  • Get digital home loans with fast approval in just a few steps
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The Bank of Baroda increases the interest rate on loans at all maturities; Check the latest rates here https://johnhesch.com/the-bank-of-baroda-increases-the-interest-rate-on-loans-at-all-maturities-check-the-latest-rates-here/ Thu, 10 Nov 2022 11:56:00 +0000 https://johnhesch.com/the-bank-of-baroda-increases-the-interest-rate-on-loans-at-all-maturities-check-the-latest-rates-here/ Baroda’s state-owned bank said on Thursday it had raised its marginal cost of funds-based lending rate (MCLR) by up to 15 basis points (bps) across tenors. The lender has approved the revision of the lending rate based on the marginal cost of funds (MCLR) with effect from November 12, 2022, the Bank of Baroda said […]]]>

Baroda’s state-owned bank said on Thursday it had raised its marginal cost of funds-based lending rate (MCLR) by up to 15 basis points (bps) across tenors.

The lender has approved the revision of the lending rate based on the marginal cost of funds (MCLR) with effect from November 12, 2022, the Bank of Baroda said in a regulatory filing.

The benchmark one-year MCLR duration was raised by 10 basis points to 8.05%. This is the rate at which most consumer loans such as personal, auto and home loans are tied.

Among other things, the overnight rate was raised to 7.25% from 7.10% previously.

The one-, three- and six-month MCLRs were raised by 10 basis points each to 7.70%, 7.75% and 7.90%, respectively.

The rate hike by Bank of Baroda comes a day after its counterpart Bank of Maharashtra raised the MCLR rate by 10 basis points.

The benchmark one-year MCLR was revised up to 7.90% from 7.80%, the lender said in a regulatory filing.

The revised MCLR came into effect on November 7, 2022.

The one-month MCLR was raised by 5 basis points to 7.50%.

Rates for other fixed-term loans, such as overnight, three- and six-month loans, remained unchanged.

Banks are raising rates after the Reserve Bank of India raised its benchmark rate to 5.9% in September. On September 30, the RBI raised the repo rate by 50 basis points to 5.9%, the fourth rate hike since May this year, in a bid to contain inflation.

(With PTI inputs)

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How Rising Interest Rates Affect Your Mortgage Payments https://johnhesch.com/how-rising-interest-rates-affect-your-mortgage-payments/ Fri, 04 Nov 2022 15:56:19 +0000 https://johnhesch.com/how-rising-interest-rates-affect-your-mortgage-payments/ Watch: Chancellor calls on public to ‘balance their books at home’ Homeowners are facing the biggest shock to their mortgage bills in more than three decades. It comes after the The Bank of England said it would raise interest rates from 0.75% to 3% Thursday – the biggest increase since 1989. At 3%, the base […]]]>

Watch: Chancellor calls on public to ‘balance their books at home’

Homeowners are facing the biggest shock to their mortgage bills in more than three decades.

It comes after the The Bank of England said it would raise interest rates from 0.75% to 3% Thursday – the biggest increase since 1989.

At 3%, the base rate – which is what the Bank charges lenders when they borrow money, and which in turn influences the interest rate these lenders charge for a mortgage – is also at its highest level since December 2008.

The Bank also warned that further hikes may be needed to bring down runaway inflation.

Millions of households are facing a sharp increase in their mortgage bills. (AFP via Getty Images)

For now, however, the rise will particularly impact mortgage holders who are on base rate-linked deals, or on a fixed-rate deal and due to remortgage next year.

That means more than four million people are likely to see big increases in their mortgage bills over the next year, as this chart shows…

Millions are due to pay off their mortgages by the end of 2023, or are on mortgage rates tied to the Bank of England base rate (Yahoo News UK/Flourish)

Millions of people have to pay off their mortgages by the end of 2023, or are on mortgage rates tied to the Bank of England’s base rate. (Yahoo News UK/Thrive)

Given this ongoing economic disruption, the difference between today’s mortgage rates and those offered two years ago is stark.

According to Moneyfacts, the average interest rate on a two-year fixed mortgage on Tuesday was 6.57%, compared to 2.43% in November 2020. A five-year fixed rate was 6.32% compared to 2, 7% in November 2020.

This difference, when expressed in terms of monthly payments, can be seen in the following table…

Monthly payments for a 25-year mortgage at different interest rates.  (Yahoo News UK)

Monthly payments for a 25-year mortgage at different interest rates. (Yahoo News UK)

However, in better news for landlords – as well as tenants who are vulnerable to rent increases if their landlords pay mortgages – Bank Governor Andrew Bailey said he now expects mortgage rates are falling from current extreme levels.

Indeed, the higher base rate should calm the financial markets and lead to lower swap rates, which are the prices of mortgages.

Read more: ‘It’s probably going to kill me’: The shocking impact of rising prices on the elderly laid bare

His remarks could be a ray of hope for the 1.8 million households whose fixed agreements are due to end next year, even if rates are unlikely to rise to previously low levels.

But for those who have had or need to take out a new mortgage in the current period of market volatility, Bailey acknowledged that the situation was “very unfortunate”.

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NAB and CBA react to RBA interest rate hike while ANZ and Westpac remain silent https://johnhesch.com/nab-and-cba-react-to-rba-interest-rate-hike-while-anz-and-westpac-remain-silent/ Wed, 02 Nov 2022 03:56:15 +0000 https://johnhesch.com/nab-and-cba-react-to-rba-interest-rate-hike-while-anz-and-westpac-remain-silent/ Australia’s second-largest bank reacted to rising interest rates and joined the NBA, unsurprisingly choosing to pass the entire hike on to its customers. Tuesday, the RBA raised interest rates by 25 basis points. This took the spot rate from 2.6% to 2.85%. It was the seventh month in a row that interest rates were raised, […]]]>

Australia’s second-largest bank reacted to rising interest rates and joined the NBA, unsurprisingly choosing to pass the entire hike on to its customers.

Tuesday, the RBA raised interest rates by 25 basis points. This took the spot rate from 2.6% to 2.85%.

It was the seventh month in a row that interest rates were raised, from a record low of 0.1% that had dominated throughout the pandemic.

On Wednesday, the Commonwealth Bank announced that it would raise its variable interest rates on home loans by 0.25% from November 11.

It followed NAB, which became the first bank to pass on the hike less than two hours after the RBA lifted rates.

Angus Sullivan, group director for retail banking, at the CBA, said the bank was looking at other ways to help customers ease cost-of-living pressures, including launching a hub to help customers track their savings, expenses, bills, and mortgage features. .

“We understand that the rapidly changing pricing environment may raise questions for some of our customers and we are here to help,” he added.

NAB also said it was passing on the full 0.25 rate hike, which would take effect next Friday, November 11.

This is bad for customers with a home loan, but good for anyone with a savings account or term deposit, who will now enjoy a higher return from that date.

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The other big banks – ANZ and Westpac – have yet to break their silence on the RBA’s announcement.

However, in the past, all major banks have passed on the cost of rising rates to customers.

NAB said last month it raised savings products by 0.25% in response to rising rates and its introductory iSaver rate increased by 0.70%, while its deposit rates futures had risen to 1.5%.

Since the interest rate began to rise in May, NAB said it has made more than 40 changes to its savings accounts.

Currently, an owner making principal and interest payments to NAB pays a rate of 5.95% per annum.

For Australians struggling to make their mortgages – apparently one in four, according to a recent Finder survey – they still have some options.

Rachel Slade, NAB Group Director for Personal Banking, said: “For those who find rising interest rates a challenge, banks have a vital role to play in providing support.”

RBA Governor Philip Lowe said they decided to raise the rate by 25 basis points as inflation is expected to reach 8% by the end of the year.

“A further increase in inflation is expected over the coming months, with inflation now expected to peak at around 8% later this year,” he wrote in a statement.

“The Bank’s central forecast is for CPI inflation to be around 4¾% in 2023 and just above 3% in 2024.”

He warned that this would not be the last interest rate hike.

“The Board has raised interest rates significantly since May,” Lower continued.

“This was necessary to establish a more sustainable balance of demand and supply in the Australian economy to help bring inflation back to target.

“The Council expects to raise interest rates further in the period ahead. It is closely monitoring the global economy, household spending and wage and price setting behavior.

Inflation currently stands at 7.3%, according to the latest report.

Graham Cooke, head of consumer research at Finder, acknowledged that times were tough.

“This seventh consecutive rate hike will be a bitter pill for many to swallow,” he said.

“The current round of rate hikes has added nearly $11,000 to the annual cost of a $500,000 mortgage.”

Although Tuesday’s announcement will add several hundred more dollars to monthly home loan repayments, it will result in thousands of wasted dollars in the long run.

Compare Market found that a $500,000 mortgage will have to pay $76 more per month after Tuesday’s increase.

However, over the life of the loan, this equates to an additional $27,000 going back to the bank in interest.

Along the same lines, an Aussie on a $1 million loan will need to shell out an additional $152 to keep their loan in check.

But that’s a whopping $54,000 over the life of the loan.

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Will your credit card interest rate increase in 2023? https://johnhesch.com/will-your-credit-card-interest-rate-increase-in-2023/ Sat, 29 Oct 2022 16:32:45 +0000 https://johnhesch.com/will-your-credit-card-interest-rate-increase-in-2023/ Image source: Getty Images It is possible, and for a great reason. Key points The Federal Reserve raises interest rates to fight inflation. Since credit card interest rates are variable, you could end up spending more on your debt next year due to these Fed rate hikes. At this point, it’s really no secret that […]]]>

Image source: Getty Images

It is possible, and for a great reason.


Key points

  • The Federal Reserve raises interest rates to fight inflation.
  • Since credit card interest rates are variable, you could end up spending more on your debt next year due to these Fed rate hikes.

At this point, it’s really no secret that inflation has increased. Across the country, consumers are spending more money than ever to put food on the table, fuel their cars and keep the lights on. And many had to loot their savings or accumulate dozens of credit card debt In the process.

If you’re in the latter camp, you might take comfort in the fact that you’re in good company. But you may also need to prepare for the fact that your credit card debt could start costing you more in 2023.

Why credit card debt could get even more expensive

The reason credit card debt is often hailed as dangerous is twofold. Unlike personal or car loans, which usually come with fixed interest rates, credit card interest can vary. This means that the interest rate on your debt could increase over time.

In addition, too much credit card debt can damage your credit score, making it difficult to borrow affordably when you need it. This remains true even if you make all your monthly payments on time.

Now interest rates credit card load tend to be high to begin with. But next year, you may find that your rate increases even more.

Why is that? Well, it has to do with inflation.

The Federal Reserve attempts to curb inflation by raising interest rates. The Fed does not set credit card interest rates. Rather, it oversees the federal funds rate, which is the rate banks charge each other for short-term borrowing. But when that rate rises, consumer borrowing rates tend to follow. So over the coming year, it will come as no surprise to see interest rates on a range of borrowing products, including credit cards, rise.

What to do if you have credit card debt

If you have a balance on your credit cards that is already costing you money, you can anticipate interest rate hikes by paying it off. Oh, but wait — you might not be able to pay it back because your savings fell due to inflation. And frankly, it’s an ugly situation to be in.

But in this case, all is not lost. First of all, you can always start reduce this debt as much as possible, even if it means putting an extra $10 here and $20 there. You can also try taking a seasonal restlessness and use your winnings to pay down your credit card balances. In the coming weeks, many businesses will likely need more labor during the holiday rush, so you might have a good opportunity to take on some extra work – and cash.

Otherwise, pay attention to the interest rate on your credit card debt and see if you can find ways to make that debt cheaper. One option you can potentially consider is a balance transfer, where you transfer your existing debt to a new credit card with a lower interest rate than you are currently paying. Some balance transfer cards even come with a 0% launch rateso you might be able to get a stay of accrued interest for a while.

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Egyptian pound plummets after interest rate hike and exchange rate change https://johnhesch.com/egyptian-pound-plummets-after-interest-rate-hike-and-exchange-rate-change/ Thu, 27 Oct 2022 13:48:08 +0000 https://johnhesch.com/egyptian-pound-plummets-after-interest-rate-hike-and-exchange-rate-change/ The Egyptian pound fell to a new low against the US dollar today after two significant fiscal changes. What happened: The Central Bank of Egypt raised several key interest rates today by 2%, citing rising prices internationally. The bank also announced the start of a “sustainably flexible exchange rate regime”. This will measure the Egyptian […]]]>

The Egyptian pound fell to a new low against the US dollar today after two significant fiscal changes.

What happened: The Central Bank of Egypt raised several key interest rates today by 2%, citing rising prices internationally.

The bank also announced the start of a “sustainably flexible exchange rate regime”. This will measure the Egyptian pound against other foreign currencies.

In addition, the central bank announced that it would start “gradually” ending the use of letters of credit for import financing. They will stop the practice altogether by December this year, according to a statement.

The Egyptian the pound fell more than 13% against the US dollar today, falling to around 23 pounds to the dollar as of 8:40 a.m. ET, according to market data. This is a historic low for the Egyptian pound. In 2016, the currency fell to around 19 to the dollar.

What this means: Central banks generally raise interest rates with the aim of reducing inflation. Higher rates tend to reduce borrowing and therefore cash in circulation. Like other countries, Egypt has experienced significant inflation this year, and this is not the first rate hike in recent months.

The Egyptian government announced earlier this week that it would switch to a “flexible exchange rate regime”. Acting central bank chief Hassan Abdalla said on Sunday they would start measure egyptian pound against foreign currencies and gold, as opposed to the US dollar.

This is in response to the Egyptian pound poor performance against the dollar those last weeks. The pound is doing better against other currencies, such as the euro.

Regarding the letter of credit, Egypt began requiring them for imports in February. Letters of credit are documents issued by banks that guarantee that a seller will receive payment from the buyer within a certain period of time. The move allowed the central bank to control demand for foreign currency, but also led to delays and increased administrative costs, according to a European Union document.

Prime Minister Mostafa Madbouly said on Tuesday that Egypt would abandon the letter of credit system after an apparent outflow of $25 billion from Egypt in a month.

Why is this important: These measures are the latest efforts of the Egyptian government to deal with the economic crisis in the country. Imports from Egypt — especially cereals — have been strained since the war in Ukraine. This partly explains the high inflation and the poor performance of the pound. The last central bank the governor resigned in August. Egypt is also seek more investment of its wealthy Gulf allies to help stimulate the economy.

Know more: The International Monetary Fund (IMF) praised Egypt for its new monetary movement.

“The Central Bank of Egypt’s move to a flexible exchange rate regime is an important and welcome step to correct external imbalances, boost Egypt’s competitiveness, and attract foreign direct investment,” the IMF said in a statement. a statement.

The Washington DC-based institution has also confirmed that it has reached an agreement with Egypt on a 46-month “extended financing facility” for $3 billion. It is a type of loan.

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Bracing for higher interest rates, Canadians are feeling the pinch https://johnhesch.com/bracing-for-higher-interest-rates-canadians-are-feeling-the-pinch/ Mon, 24 Oct 2022 12:03:47 +0000 https://johnhesch.com/bracing-for-higher-interest-rates-canadians-are-feeling-the-pinch/ Breadcrumb Links Summary Executive Six in 10 Canadians are worried about the impact of rising rates A poll released today found that a record number of Canadians are worried about the impact of rising rates on their financial situation. Photo by Getty Images Reviews and recommendations are unbiased and products are independently selected. Postmedia may […]]]>

Six in 10 Canadians are worried about the impact of rising rates

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This is Bank of Canada decision week and for many Canadians, Wednesday can only bring bad news.

There is no doubt that the Bank will raise its key interest rate, economists predict 50 or 75 basis points.

But Canadians are already feeling the effects.

A poll conducted today by insolvency firm MNP Ltd. revealed that a record number of Canadians are concerned about the impact of rising rates on their financial situation. The 59% or six in 10 Canadians who expressed concern is the highest since the survey began tracking data in 2017.

This year, the Bank raised interest rate three percentage points, with more to come, making it one of the fastest monetary policy tightening cycles in history.

On top of that, Canadians have to deal with decades of inflation.

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“For households that have already cut their budget and reduced as much spending as possible, any future rise in interest rates could put them in a position where they are forced to take on more debt to meet their bills. But the The cost of servicing this debt also increases as rates rise, making repayment much more difficult,” MNP Chairman Grant Bazian said in the press release.

Renters and low-income households are the most vulnerable. The survey found that 59% of renters, compared to 41% of owners, fear financial hardship as interest rates rise.

But owners also have reason to worry. Ratehub.ca says that if the Bank raises its rate by 50 basis points on Wednesday, a homeowner with a variable rate of 4.25% on a $593,856 mortgage will see that rate drop to 4.75%. It will cost an extra $165 per month or $1,980 per year on mortgage payments.

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If the Bank increases its rate by 75 basis points, the new rate of 5% will cost an additional $249 per month or $2,988 per year.

So will it be 50 or 75?

Desjardins economists expect the latter, but they also wonder if this is the right path.

“Monetary policy operates with significant lags, so using current data to guide decisions is dangerous and almost guarantees an overshoot,” Royce Mendes, head of macro strategy at Desjardins, wrote in a note Friday.

He points to the Reserve Bank of Australia, which surprised markets by raising rates by 25 basis points instead of 50, as a cautious path. Although there are differences between the two economies, there are also many similarities.

Both have high household debt ratios and their mortgage markets are structured so that households feel a rapid rise in interest rates, Mendes said. In fact, housing represents an even larger share of the Canadian economy, making it particularly sensitive to rising rates.

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“While we believe the Bank of Canada will raise rates by 75 basis points next week, we are not convinced it should,” Mendes said.

“If the Bank achieves a second consecutive 75 point increase, we believe central bankers should be more transparent about the likelihood of a recession in 2023. But given their recent track record in this regard, we cannot be sure they will. ,” he said.

Canadians, however, may have some clues as to where rates will go from here. The Bank releases its updated economic projections on Wednesday, and the outlook for inflation will be key.

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CHILI-CUCUMBER GUMMIES Six years ago, while vacationing in Mexico, Toronto businessman Rahim Bhaloo noticed a gap in the market. While dollar stores were common in Canada, they were rare in this Latin American country. Thus was born PesoRama, a discount chain that adapts its offers to the Mexican market. Does anyone have any chilli-cucumber gummies? The company now has 20 stores and plans to open five stores per month starting in November. In the second of our series on Latin America, Marisa Coulton tells the story of PesoRama and examines how Canada and Mexico could take their trade relationship to another level.

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  • Alberta’s new cabinet will be sworn in
  • Saskatchewan Premier Scott Moe Moe will provide an update on Saskatchewan’s Growth Plan and the provincial government’s fall legislative plans and priorities ahead of the Speech from the Throne. Premier to discuss opportunities for Saskatchewan to be a leader in energy and food security and how the province can protect opportunities for growth and prosperity
  • Standing Finance Committee Meets on Pre-Budget Consultations for Budget 2023
  • The Standing Committee on Agriculture and Agri-Food Meets Regarding Bill C-234, An Act to Amend the Greenhouse Gas Pollution Pricing Act
  • Statistics Canada will publish travel figures between Canada and other countries
  • Earnings: PrairieSky Royalty, Celestica

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“Survive, but no longer prosper.” That’s how an economist described the Canadian consumer after data showed retail sales edged up 0.7% in August after falling 2.2% in July. The estimate for September is a decline of 0.5%.

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CIBC senior economist Andrew Grantham said retail sales volume is expected to end the third quarter near its level at the end of the second.

“Thus, although not necessarily growing, consumer spending on goods has not yet materially declined under the weight of strong inflationary pressures and rising interest rates,” he said. stated in a note.

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Oil producers are warning that spare capacity is limited, which means prices could spike quickly and unexpectedly. Our content partner MoneyWise highlights three stocks investors might want to own if that happens.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Do you have an idea for an article, a pitch, an embargoed report or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

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