Q: There’s always a lot of speculation over interest rates, and my friends like to debate the chances of another interest rate cut. What do you think; is there another interest rate cut coming?
A: You would have seen this week’s decision by the RBA to leave the cash rate unchanged at its current historic low of 2% in July.
The Reserve Bank remains very cautious about economic events both in Australia and across the world, with the Greek crisis a prime example of external factors that can impact internal economic policy.
I believe that Australia’s economy remains very patchy, and the RBA is watching trends warily.
Many economists expect the next interest rate move to be down. I believe the Reserve Bank will hold rates at their current low levels for a few more months, but I too predict the next move to be down rather than up.
If the economy doesn’t show signs of improvement, they may be forced to cut rates again, but most likely not for at least two or three months. There might even be room for a half per cent cut, depending largely on confidence, unemployment and the strength of the dollar.
I believe the Reserve Bank continues to be concerned about the strength of the Australian dollar, even though it is now hovering around 75 US cents.
It’s important to consider not just what the cash rate is, but how the cash affects you and your home loan.
The drop to yet another historic low would probably stir the housing market along, but borrowers should not chase properties at any price as you may be paying too much in very hot markets, particularly in parts of Sydney and Melbourne.
Using this low rate environment to get ahead on your home loan by making additional repayments is a really smart thing to do. Also, making sure you have a competitive interest rate by regularly reviewing the market, doing a home loan health check to ensure your home loan is still right for you, speaking to your mortgage broker or asking your lender for a better rate are all ways you can make sure you’re taking advantage of the lowest interest rates I’ve seen in 23 years.
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