Hi Property Lovers
I'm sure this subject is on the mind of every home owner with a mortgage! I came across this article on Australian Property Investor that gives some opinions in what may happen.
Australians should prepare for a series of 25 percentage point interest rate rises to take the official cash rate to four per cent much faster than many economists had expected.
That’s Macquarie Bank interest rate strategist Rory Robertson’s interpretation of a speech Reserve Bank (RBA) Governor Glenn Stevens gave yesterday.
Stevens says the risks of “really serious economic weakness have abated” and the RBA’s concern is now “how to configure monetary policy for the recovery”.
“If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework,” Stevens says.
“None of this is to say that the economy is, at this moment, ‘too strong’. It isn’t. The point is, rather, that the very low interest rate settings were designed for a weaker economy than we are in fact facing. Plainly, the downside risks to which the board was responding earlier have not materialised.
“This isn’t a problem. In fact, it’s a very desirable situation… It’s simply something we need to recognise in setting monetary policy, which means not holding interest rates at very low levels when that’s no longer needed.”
Robertson says Stevens’ remarks “convey to me a sense that the RBA will choose to hike in 25 basis point lots at each of its next three meetings, getting the cash rate to four per cent much faster than many of us suspected”.
“With global markets continuing to do well, reinforcing economic recoveries everywhere, the risk is growing that the RBA’s February hike – coming after its two-month summer break – may be the first of several 50-pointers in 2010.
“The stronger Australian dollar will hold the RBA back, but perhaps not by as much as earlier thought.
“As observed previously, further good news on the economy will be bad news for interest rates. In particular, if the downtrend in full-time employment continues to stabilise and then reverse, we can expect the RBA over an extended period to move through its various policy settings, from “emergency” – three per cent – towards “easy” – four per cent – and then “neutral” – five per cent of so.
“Restrictive” – six per cent plus – will come much later on if things go really well over coming years.”
Editor of Australian Property Investor magazine, Eynas Brodie, says the anticipated increases to interest rates over the coming year should not be cause for panic.
“The hype surrounding rising interest rates needs to be kept in proper perspective,” she says. “As the economy returns to normal, so too must the interest rates setting.”
Having said that, she warns borrowers to act now if they’re concerned about their ability to make repayments on a higher variable rate.
“Nobody will be able to say in a few months or a year from now that they didn’t know rates were going to go up,” she adds.
This information was gathered from:
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