Interest Rate Update (November 2020)

The following graph shows movements in both the 6 month and 3 year Bank Bill yield rates, for the period January 2016 to date.

These rates are wholesale rates which are net of any margin charged by financial institutions. It is not uncommon for retail premiums for 3 year fixed rates, to be 0.30% pa or 30 basis points above the wholesale premium.

Currently the 6 month wholesale Bill rate is 0.03% pa and the 3 year wholesale Bill rate is 0.11% pa, a premium of 0.08% pa or 8 basis points for the longer term.  This premium for the longer term is a reflection of how low current rates are, with very little ability to be reduced further.

In addition to this, there has been renewed confidence regarding prospective COVID-19 vaccines, which is providing evidence that the recovery of the global economy will be quicker than expected.

Past experience suggests that any significant improvement in global economic conditions will lead to quite rapid increases in interest rates, particularly longer term rates, which move ahead of short term rates very quickly. Therefore clients wishing to take advantage of the current low interest rate environment for a longer period of time, should be monitoring fixed interest rates closely with their banker.