Nearly
12 months ago, on a day when most Australians were preparing to watch
the race that stops the nation, the Reserve Bank of Australia (RBA)
announced what many argue was the rate hike that stopped the nation. For
the seventh time in just over a year, the target cash rate was
increased by 25 basis points. To make matters worse, over the months that followed we were being
threatened with further increases, as the RBA battled to keep inflation
in-check.What a difference a year makes. We haven’t seen an interest rate hike since, and as we approach Melbourne Cup day for another year, the sentiment among economists is in stark contrast to 2010. With economic outlook being downgraded across the globe, the prospect of the RBA reducing interest rates on the first Tuesday in November could be at shorter odds than the favourite for Race 7 at Flemington.
“Consumer confidence has been weakened by the lurking threat of interest rate hikes,” says Greg Mitchell, Homeloans general manager of retail sales.
“But as economists have now changed their outlook, we’re seeing this consumer sentiment improve”.
The latest retail sales figures, released by the Australian Bureau of Statistics (ABS) last week, validate Mitchell’s claim. The past two months have seen positive, albeit modest growth in retail trade of 0.6% (seasonally adjusted) per month.
“Despite global economic concerns, particularly in Europe and the US, many Australians are feeling comforted by the fact that their mortgage repayments don’t appear to be increasing in the foreseeable future,” says Mitchell.
The international financial volatility has led to significant decreases in fixed rates in recent months, giving home owners more certainty when it comes to their mortgage repayments.
“Fixed rates reflect forecasts of where interest rates are headed,” Mitchell adds.
“So not only do they provide borrowers with the ability to guarantee what their repayments will be over a given period of time, they paint an optimistic picture of what the future holds for interest rates.”
If lenders are pricing for it, and economists are predicting it, then the possibility of a rate reduction on Melbourne Cup day is looking increasingly likely.
“The Reserve Bank has certainly started hinting at the possibility of ‘easing monetary policy’, which it doesn’t do lightly,” Mitchell concludes.
“So at this stage a rate cut looks like it might be a good bet, if not in November then in December this year.”
Homeloans has three-year fixed-rate home loans at 6.49%pa* and variable rates from 6.89%pa*.
If you would like to enquire about our low fixed or variable-rate home loans, contact us today!