Interest Rates – Will they get any lower?

Variable interest rates, How low will they go? That is the question on most mortgage holders lips. Whilst North Korea holds off from attacking the civilised world, the European financial crisis remains relatively contained, China and USA continues recent good form, then I expect fixed interest rates to start increasing soon. This will be an indication of where the variable rates in Australia will start heading not long after.

The Australian economy has been surprisingly resilient despite the economic management and policies driven by the minorities that allow the current minority federal govt to remain in power. There are plenty of hard decisions that must be made, but certainly won’t be in an election year. We will have a very conservative but stable govt from September. The mining boom is normalizing, and low interest rates (still high by global standards) are the few drivers of our emerging post mining boom economy. The fact that our interest rates are still high artificially inflates the Australian Dollar which is destroying our manufacturing, tourism, farming, education, and service industries. With the mining boom over, there won’t be much left to fall back on unless serious macro economic adjustments are made quickly and interest rates are kept low.

Australia needs interest rates to remain low, but the Reserve Bank is keen to keep them high, to lower them later for if/when the European zone finally collapses and for other potential shocks to the worlds financial systems.

Variable interest rates will remain on hold for the next few months and it’s anyones guess thereafter. Don’t hold you breath for the banks to deliver any out of cycle cuts from the extra margin they are making on interest rates. Variable rates are unlikely to go lower until there is another major calamity.

4.99% fixed for 2 years does look good at the moment :)  Call me to discuss your options