Remember last year when the Reserve Bank cut official interest rates to a record 0.1% and said it wouldn’t lift them until “at least” 2024? But as borrowers may have noticed, fixed interest rates have started to creep up in recent months, particularly for longer terms of four and five years, for example.
In early July, researcher RateCity found a growing list of lenders had also started raising their two- and three-year fixed rates with sub-2% three-year loans disappearing fast.
As fixed-rate loans reflect expectations for future interest rates, most analysts believe we have passed the bottom of the interest rate cycle, though the latest round of lockdowns may push any future rate rises further back.
Economists also placed significance on Reserve Bank governor Philip Lowe’s suggestion that the bank could lift rates earlier, though it was unlikely before 2024.
GUIDED BY THE DATA
Statements on interest rates from the Reserve Bank are a bit like oracles that we all examine closely looking for a glimpse into the future. And while Lowe did appear to leave open the possibility of rates rising before 2024, he made it clear the bank would not lift them early without good reason or without warning the market.
He said it would not act until inflation was “sustainably” in the 2%-3% range.
“It is not enough for inflation to be forecast to be in this range,” he said. “We want to see results before we change interest rates. An increase in the cash rate depends upon the data not the date. It is based on inflation outcomes not the calendar.”
The reason inflation is so important is that the Australian economy, along with other economies like the US, bounced back more quickly and strongly than anticipated last year. That’s great news, but it means the stimulus measures still in place may no longer be needed.
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