Interest Rate Update (April 2021)

The following graph shows movements in both the 6 month and 3 year Bank Bill yield rates, for the period January 2018 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 0.08% pa and the 3 year wholesale Bill rate is 0.32% pa, a premium of 0.24% pa or 24 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 the roll out of COVID-19 vaccines, which is providing evidence that the recovery of the global economy will be faster than expected. Significantly lower unemployment figures and very large increases in real estate values, have also lead to the market factoring in the prospect of higher interest rates in the medium to longer term.

As seen in the graph below, 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 with their banker closely.