Where to for Australian Interest Rates in 2010?
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Interest Rates have risen dramatically in recent months on the back of the RBA increasing rates by 0.75% upon stronger economic conditions in Australia.
What does 2010 have in store for the home owner and the average investor dependant on interest rates? Well one thing would appear certain, we are headed for higher interest rates again in 2010 as the economy looks set to continue the miracle of the last 20 years.
With the RBA rate set at 3.75% and the focus on moving towards a non-inflationary rate (around 5.00% at least as conditions improve) then we can expect to test 4.25-4.50% in the first six months of the year. A big early year trigger will be holiday consumption and Christmas sales figures that will influence any decision by the RBA in February.
Meanwhile, the banks appear hungry to increase rates in excess of the RBA rate as evidenced in the November rate increase. With banks keen to maintain or even increase margins to offset increased funding costs this will be another clear trend in 2010.
Expect interest rates to tick higher early in the year and as the world economy rebounds, the UK and US will be pivotal, the RBA will have little option to increase rates. All this means that 2010 will be tough year for homeowners and will give pensioners and those dependant on fixed interest rates some solace after the last few years of low savings account interest rates.
It is hard to see home prices showing any real growth in 2010, at the top end expect decent rises as the wealthy once again impose themselves on the top end of the property market after a restrained period in recent years.
What do you think 2010 has in store for interest rates and the Australian economy, share your thoughts?
RBA strike with interest rate rise to 3.25%
The Reserve Bank Governor Glenn Stevens hiked rates today by 0.25% to 3.25% on the back of strengthening signs of economic recovery and rising concerns at the RBA of potential inflation risks from low interest rates.
The rate increase, the first since April 2009 when rates were decreased to 3.00%, signals a move by the RBA to limit the possibility of rampant inflation on the back of historically low interest rates. The move is not likely to be the end of the cuts with talk already of another increase on Melbourne Cup day in November.
All big banks are likely to pass on the rate increase promptly.
What do you think interest rates will go up to by the end of 2010? Share your thoughts in our comments section.
NZ Reserve cut rates to 2.5%
During the week the New Zealand Reserve Bank cut the official cash rate by 0.50% to a record low 2.50%. The cut to the official cash rate is likely to stay at or current or lower levels into 2010 as the New Zealand economy continues to struggle.
ECB & Bank of England cut rates
The ECB and Bank of England both cut rates this week in response to the deterioration of demand and consumer confidence in the European economy.
The 16 country ECB cut rates by 0.50% to 1.50% while the Bank of England took the unprecedented step of of slashing rates in half to a record low of 0.50%.
The future of the European and UK economies are on a knife edge as consumers are failing to spend instead hoarding available cash with expectations the markets will further deteriorate. This logic however is the worst option as consumers will need to lead the economy out of this malaise.
With the banking system in tatters and nationalism of UK banks on the government agenda, the Euro zone as a long way to go till they can pick themselves up from this crisis.
RBA decision to keep rates stable raises questions
The RBA this week announced that interest rates to stay on hold this was met in some circles with applause and others questioning the logic of RBA governor Glenn Stevens.
Despite the economic performance of Australia faltering it is still comparing very well against fellow OECD countries and has arguably stood up as one of the best in the current downturn.
It is this performance while still a contraction in economic growth that helped determine the RBA board decision to keep rates the same at 3.25%, a 45 year low. Interest rates have been forecast to fall to around 2% this financial year but we are unlikely to see any big cuts like 0.75% and 1.00% as the RBA expects the stimulus to support the market in due course.
Do you think the RBA made the correct decision in not cutting rates in March? Share your thoughts by adding a comment.
What will the RBA do in March?
Well March is just around the corner and the next RBA meeting will decide on monetary policy for another month. Since September 2008 the RBA have cut rates by 400 basis points, what does March have in order for home owners, investors and the economy?
Glenn Stevens perhaps has one of the hardest jobs in Australia. Stevens has to decide if enough liquidity has been pumped into the local economy with recent interest rate cuts or if more is required to stimulate domestic demand.
The result by Harvey Norman and the halving of profit is an omen for the consumer hed Australian economy and an indication that things are likely to get much worse before they get better.
Consumer demand despite government stimulation before Christmas has failed to bounce post Christmas as households tighten belts with increasing job losses and negative sentiment affecting the economy.
The RBA boss has already indicated that he would like to sit back and assess the economy in light of all the recent economic stimulants announced by the government and any future rate cuts are unlikely to be as big as recent cuts.
I suspect we will see a cut of 50 basis points in March that will take us to a cash rate of 2.75%. Future cuts will likely continue to occur and could take us down to 2.00% in the coming months but Stevens will be monitoring the economy for worsening economic news before he pulls the trigger for big future cuts.
RBA signal slowdown in major rate cuts
The RBA have given a clear indication that future cuts will be much more moderated and the chance of major cuts may be over with the release of their quarterly statement on monetary policy.
The rate cut this week took the RBA rate to a 45 year low. With the fiscal stimulus of recent rate cuts and the Government’s stimulus package the economy the RBA is likely to sit back and monitor the impact on the domestic economy before further cuts.
The RBA expects growth of 0.25% in 2008-09, while forecasting 1.25% in 2009-10. Perhaps even this estimate could be excessive in the global malaise continues.
Bank of England rates now 1.5%
The Bank of England cut rates by 50 basis points to 1.5% in what is becoming the worst economic slowdown since the Great Depression of the 1930s.
The UK has been harder hit than most amid a dramatic slowdown in consumer spending, negative economic growth and falling housing prices.
NAB, Commonwealth & St George join in cutting rates
The National Australia Bank (NAB), Commonwealth Bank and St George joined Westpac and ANZ today by announcing rate cuts to their standard variable rates.
All major banks have now passed on the full 100 basis point cut to consumers.
NAB and Commonwealth have slashed their rates to 5.74% while St George have lowered their rate to 5.89%, the rate changes are effective from 13 February.
NAB and Commonwealth were at pains to point out that future interest rate cuts by the RBA may not be passed on in full to consumers as the demands and pressures on bank margins continue.
Westpac and ANZ first to cut
Westpac became the first of the banks to cut rates after the RBA announced a cut of 100 basis points to reduce the cash rate to 3.25%.
ANZ followed shortly after announcing a full cut of 100 basis points just like Westpac.
The ANZ and Westpac have lowered their rates to 5.91%. The ANZ announced the cut will take effect from 13 February and further cuts will be passed on subject to funding costs.
As at the time of posting the Commonwealth Bank and NAB have not announced a rate cut..