The future direction of interest rates has rarely been as uncertain as it is at the moment - but which way are they likely to go, and will you get a respite on your mortgage payments?
Current rate: 4.75%
Recent survey results from mortgage broker Loan Market suggest that the majority of Australians are suggesting interest rate cuts before the end of the year, but opinions are still divided on the subject.
When asked ‘What do you think the RBA will do with interest rates for the remainder of 2011?’ a slim majority of 56% of respondents said the official cash rate would be dropped from its current level of 4.75%.
A single drop was backed by 34% of respondents, 22% backed two rate cuts, 28% tipped rates to stay on hold and 16% predicted an increase.
However, LoanMarket chief operating officer Dean Rushton thinks that the recent economic ructions will see rates slashed
“The RBA until as recently as last month had considered lifting the cash rate to counter any rise in inflation but a number of factors such as the uncertainty in the global economy and sluggish domestic consumer sentiment has seen that change,” he said.
“The debt crisis in Europe and the soft retail sector in Australia could see the RBA reduce rates as early as its next board meeting on Tuesday.”
Other industry pundits agree. Westpac were the first of the Big Four banks to come out and back a rate cut, when they predicted last month that the official cash rate would drop by as much as 1% by the end of 2012.
And, if the minutes of the RBA’s August monetary policy meeting are anything to go by, its board members believe that interest rate hikes will be unnecessary if the worldwide financial turmoil continues.
"If the financial market turmoil continued, it could further weaken household and business confidence. This in turn could weaken the outlook for demand relative to the central forecast and, over the medium term, dampen the inflation outlook," said the minutes.
But that’s not to say that a rate cut is a done deal, says NAB chief executive Cameron Clyne. He believes that the economic effects of cutting rates are far from certain, and that they are likely to remain on hold while the RBA weighs up both sides of the argument.
“The view is that if you reduce rates it will stimulate demand, but it may not, it might actually stimulate saving,” he said at a recent Israel Chamber of Commerce lunch in Melbourne.
"I think at the moment, because there is so much data on both cases, we're in a wait-and-see mode.”
No matter which way rates go, it's worth keeping a watching brief on mortgage rates as there could be a better deal out there. To check out the best mortgages on the market today, visit our sister site www.yourmortgage.com.au
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