Interest Rates on hold for now, where will they go next

Home owners were again this month relieved to find the Reserve Bank left rates on hold. They haven't been moved once since November 2010. The obvious question is in which direction will they move in the future?

As usual we have commentators and industry players with opposing predictions. Westpac announced last month they expect 4 rate cuts over the next year. However most industry players were expecting a rate rise this month and still expect one in the short term. Commsec economist, Savanth Sebastian was quoted a few days ago in The Age newspaper predicting a rate rise by November.

A couple points the experts think could lead to a rise are:

    • Inflation figures are too high at the moment. One of the reserve bank's main missions is to lower inflation and moving interest rates up is their only tool to achieve this.
    • Low unemployment, booming mining sector and strong trade with our neighbours like China - all lead to us having money to spend to push prices higher and inflation higher.

Couple Points the experts think could lead to a fall in rates are:

  • Things like temporary high prices of bananas affecting inflation only in the short term
  • World economy still very depressed and seemingly constant and unending financial woes with the latest American debt crisis that has only temporarily been solved

We will all have to wait for next month to see the next move.

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Published on August 8-th, 2011 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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