Interest Rate Update (September 2022)

The following graph shows movements in both the 6 month and 3 year Bank Bill yield rates, for the period February 2006 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 3.06% pa and the 3 year wholesale Bill rate is 3.61% pa, a premium of 0.55% pa or 55 basis points for the longer term. As the graph below illustrates, the sharp increase in wholesale interest rates has been very rapid when compared to movements of rates over the previous 16 years. This appreciation however has returned rates to a level closer aligned to long term average rates. 

The appreciation in rates has slowed in the previous 2.5 months, particularly in the long term, despite the multiple 50 basis point increases made by the RBA during this period. This is an indication that the bulk of the expected interest rate appreciation has already been factored into the wholesale interest rate market. There is also speculation that the interest rates required to limit inflation, may also subsequently cause a significant contraction in economic growth and lower interest rates in the future. 

However, given the current uncertainty and volatility in the global and domestic economy, it is particularly difficult to predict what rates may do in the medium to long term. The movement in the longer term 3 year rates, is a classic example of markets over reacting initially, then correcting.