Interest Rate Update (April 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 0.23% pa and the 3 year wholesale Bill rate is 0.35% pa, a premium of 0.12% pa or 12 basis points for the longer term.   

This premium for the forward rate suggests that rates are so low at present, that the expectation in the medium term is that there is only one way interest rates can go, that is for rates to rise. However given the current uncertainty in the global economy, it is particularly difficult to predict what rates may do. 

Even though interest rates are extremely low at present, clients should ensure that they are obtaining the best rates available from their bank. A 50 point (0.5% pa) differential in risk margin at present, represents a large percentage difference in actual interest paid eg 0.5% on 3.5% equals 14%.