Interest Rates

Fedruary 2010 - Author: Randolph Clements

We can expect a tightening of monetary policy. It goes hand in hand with a strengthening economy. It’s important to remember that last year’s emergency cash rate of 3% was exactly that – an emergency rate. As the graph below demonstrates, the RBA cash rate is still the lowest it’s been for over 10 years, even after recent hikes. It peaked at over 7% in 2008, while the banks’ variable standard rate hit almost 10%.
Most economic analysts are predicting a cash rate of between 4.25% and 5% by the end of 2010, depending on the strength of the economy and pace of inflation. This is a fairly standard rate in monetary policy terms. The resulting mortgage lending rates of 7% or 8% would still be significantly lower than the 9.6% rate in place before the global financial crisis.
Mortgage holders are reminded to explore, with their lender or financial planner, the many ways to manage a mortgage effectively – over the long term. Interest rates will, by nature, fluctuate over the life of a loan. Sound financial planning and mortgage management strategies absorb the impact of increases – and reduce both the total amount payable and the longevity of a loan.

Looking Further Ahead

Given house prices are already exceeding pre-global financial crisis levels, growth is expected to continue well into 2010. While some suggest house prices might stabilise with interest rate rises, other reputed analysts, including Australian Property Monitors, suggest that rate rises may well not affect prices until late 2010 or possibly 2011.
We expect to see a market characterised by fewer first home buyers (unless new incentives are introduced), more investors, gradually rising interest rates, and a continuing consolidation of the property market amidst increasing consumer, business and investor confidence. It’s a very encouraging picture and one that suggests continued, healthy activity on the property market in 2010.

***********

While we at Raine and Horne are very pleased with the nation’s resilience and resourcefulness – and anticipate a continued strengthening of the nation’s economy – we also continue to remain alert and prepared for any signs of shifts in trends. This is simply a necessary measure that empowers businesses to implement strategies and adapt as external conditions change. It simply makes good business sense.
The keys to rising above any challenge, whether economic or otherwise, are to acquire the required knowledge, adapt wisely and flexibly to external conditions, and to find and utilise more inner resources – whether at the individual, family, small business, large company, or national level. We need not fall victim to external challenges. We do, however, need to look for ways to maximise opportunities in whatever conditions present themselves. It is possible, as Raine & Horne has done over time, to be the catalysts our own success.

Back to News Page