Despite higher than expected inflation figures released on Wednesday, where headline CPI increased by 0.9% over the June quarter versus a market expectation of 0.7 – 0.8%, many industry commentators are holding out hope the Reserve Bank will keep the cash rate steady for at least another quarter.
In fact, a few economists are predicting at least one interest rate decrease in the next year because many indicators outside the resources sector are pointing to a downturn (eg. consumer and business spending, among other things). There are also uncertainties with important peer economies such as the US and Europe.
However, given the Bank’s propensity for a pre-emptive cash rate position and Australia’s mid-term inflationary pressures thanks to the mining boom, I wouldn’t bet on it. The current great debate is really about whether rates will rise once towards the end of 2011 or whether this will occur earlier next year.
While it has lowered its short term growth forecast for our economy, the Bank’s latest meeting minutes indicated it has time to wait to see what direction domestic growth takes before making any cash rate moves. Let’s hope that is the case.
Sentiment and spending are definitely not at healthy levels. Although our resources sector is experiencing strong growth the RBA would know the other side of the economy – the side where most Australians live and work – needs to return to a more positive outlook before the cash rate, and subsequently interest rates, can rise to dampen mid-term inflation without having a seriously negative effect.
Will the Reserve Bank have time? Will it risk not pressing on the brakes soon enough? No crystal ball on that, unfortunately.
A cash rate hold would be welcomed by all manner of people repaying debt at a variable interest rate. It provides a little relief in a budgeting environment experiencing a range of living cost hikes, from food to petrol to electricity and beyond. We’re certainly crossing our fingers.
Regardless, borrowers should always strongly consider taking advantage of any extra money saved due to steady interest rates (there hasn’t been a cash rate rise since November last year) by contributing it directly into their home loan or their offset account, to reduce the interest owed. Doing so can also take a big chunk of time off the home loan term and is a great method of building a solid financial buffer should rates take a turn for the worse.
We always suggest repaying your mortgage as if the interest rate was a good one or two percent higher, if you can manage it. Remember – home loan interest rates can move at any time despite what happens with the cash rate, so it’s best to be prepared. You can always redraw extra money contributed if needed (check your loan does allow this).
Both existing and potential borrowers should also note that because housing finance demand has slowed in recent times lenders are clambering over each other for customer business, offering rate discounts and various other incentives.
Take advantage of this! Ask your current mortgage lender to sweeten their deal or pitch one lender against another for your business. It’s a terrific time to bargain and negotiate. Either do this yourself or have a professional mortgage broker work on your behalf.
By Kristy Sheppard, Head of Corporate Affairs at Mortgage Choice
Despite higher than expected inflation figures released on Wednesday, where headline CPI increased by 0.9% over the June quarter versus a market expectation of 0.7 – 0.8%, many industry commentators are holding out hope the Reserve Bank will keep the cash rate steady for at least another quarter.
In fact, a few economists are predicting at least one interest rate decrease in the next year because many indicators outside the resources sector are pointing to a downturn (eg. consumer and business spending, among other things). There are also uncertainties with important peer economies such as the US and Europe.
However, given the Bank’s propensity for a pre-emptive cash rate position and Australia’s mid-term inflationary pressures thanks to the mining boom, I wouldn’t bet on it. The current great debate is really about whether rates will rise once towards the end of 2011 or whether this will occur earlier next year.
While it has lowered its short term growth forecast for our economy, the Bank’s latest meeting minutes indicated it has time to wait to see what direction domestic growth takes before making any cash rate moves. Let’s hope that is the case.
Sentiment and spending are definitely not at healthy levels. Although our resources sector is experiencing strong growth the RBA would know the other side of the economy – the side where most Australians live and work – needs to return to a more positive outlook before the cash rate, and subsequently interest rates, can rise to dampen mid-term inflation without having a seriously negative effect.
Will the Reserve Bank have time? Will it risk not pressing on the brakes soon enough? No crystal ball on that, unfortunately.
A cash rate hold would be welcomed by all manner of people repaying debt at a variable interest rate. It provides a little relief in a budgeting environment experiencing a range of living cost hikes, from food to petrol to electricity and beyond. We’re certainly crossing our fingers.
Regardless, borrowers should always strongly consider taking advantage of any extra money saved due to steady interest rates (there hasn’t been a cash rate rise since November last year) by contributing it directly into their home loan or their offset account, to reduce the interest owed. Doing so can also take a big chunk of time off the home loan term and is a great method of building a solid financial buffer should rates take a turn for the worse.
We always suggest repaying your mortgage as if the interest rate was a good one or two percent higher, if you can manage it. Remember – home loan interest rates can move at any time despite what happens with the cash rate, so it’s best to be prepared. You can always redraw extra money contributed if needed (check your loan does allow this).
Both existing and potential borrowers should also note that because housing finance demand has slowed in recent times lenders are clambering over each other for customer business, offering rate discounts and various other incentives.
Take advantage of this! Ask your current mortgage lender to sweeten their deal or pitch one lender against another for your business. It’s a terrific time to bargain and negotiate. Either do this yourself or have a professional mortgage broker work on your behalf.
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