Start Here  
Book your free
Ben Kingsley Blog post by Ben Kingsley

RBA Rates Decision – July 2010

Today the RBA announced to hold the cash rate for the month of July at 4.5 per cent.  It’s welcome news to all mortgage holders across the country, who have seen their mortgage interest costs on a variable home loan increase dramatically from the historic lows of 3 per cent in early 2009.

Let’s take a look at a $300,000 variable, interest-only mortgage. If we factor in the six rate rises of the last year, this equates to an average bank rate increase of 1.65%. That correlates to an increase in mortgage commitments of $412.50 PER MONTH!  This is why some households are feeling the pinch more in their household budgets and this carries a direct link to the soft consumer spending numbers we are seeing each month.

So the interest rate tightening cycle has done its thing for now in slowing our economy, which is why the RBA are pausing to take stock of where the overall economy is placed and what internal and external factors are going to influence their next move.  I’ve said it before and I’ll say it again, the key drivers to watch are:

Internal factors: Inflation, Employment or Unemployment levels, consumer sentiment and consumer spending.  External factors: Europe Sovereign Debt issues, US economic recovery, China and to a lesser extent India’s economic expansion and the AUD exchange rate.

Overall, Australia is still well placed with our economy growing stronger than almost all developed countries.  I see the interest rate outlook like this – I believe we will see further, but gradual increases in interest rates, but once we get to around 7.50% to 8.00% on the discounted variable retail rate, there will be real pain in the mortgage belt and this will lead to an economic slowdown and rates will start coming down again to around the levels we see today.  I can’t see us pushing through the interest rate range I stated above, as our, along with so many developed country’s economies carry too much personal/private debt (Home Mortgages, Personal Loans, and Credit Cards).

However, deterioration of the external factors and share market volatility will be a driver for lower interest rates or at worst, keeping interest rates on hold for the foreseeable future.

We are finally balanced and as the interest rates forecast I have included in this month’s report shows it’s a mixed assessment, but most are pointing to a slow increase in rates at this point in time.  Forecasting is a tough business, and it’s hard to see a clear road ahead at the moment.

Connect with Empower Wealth:
Get in the know - Subscribe to our Newsletter.

  • This field is for validation purposes and should be left unchanged.