The Sub Prime Lending fiasco in the United States has produced an indirect ripple effect on the Australian lending markets.
All of the major banks in Australia have recently increased interest rates between 0.1% and 0.2%, citing the higher cost of funds in the market as the reason.
This is the first time in many years that rates have been lifted without the cause being a shift in policy from the Reserve Bank of Australia.
Recent reductions in the interest rate in the United States, and with a hint of more to come in a recent speech by US Federal Reserve Chairman Ben Bernanke, have left Australian rates higher than most international currencies.
With US Property markets under increasing pressure from the Sub Prime fallout, and the US economy tipped to move into a recessionary period, we may see even greater reductions in the US rate than the traditional 0.25%.
Financial markets have taken a battering in recent weeks, fueled by a strong Oil Price and US Economy fears,
This has been a catalyst in the Australian dollar once again heading towards US90c, and may be enough pressure to prompt the Reserve Bank of Australia to consider a rate reduction at their next meeting in February.
With the new Rudd Government in charge in Australia, and increasing levels of global market instability, a rate reduction could be a sensible option to bring some normality to financial markets and take some personal pressure of households.
We will watch with great expectation the outcome of the next Reserve Bank meeting on the 5th February.
