interest rates, page-7

Booz

Having been involved in bank pricing decisions, there is no attempt to "scare people into making the wrong decision as usual"

The banks closely manage interest rate risk - they do not borrow on a 90 day variable interest rate basis and then lend on a three years fixed basis as the interest rate risk is too high. They effectively match fund by using interest rate swaps to manage interest rate risk.

Thus, the pricing of three year home loans follows (slight lag) the three year money market swap rate. This has been going up recently and this is the reason for increases in fixed rate pricing.

The CBA when they announced the 10 bp variable rate increase also increased fixed rates by a similar amount.

In general, banks earn a lower margin on fixed rates, so from a bank point of view, the preference is for customers to take out variable rates.

But, hey don't let the facts get in the way..............