Interest rates are undeniably on the way up, but just when the next rise will come from the Reserve Bank and how high they will go is a matter of contention among experts. While some suggest that 2011 will see mortgage holders hit with a 0.5 basis point increase in official rates, others are predicting it will be more like a 1% rise.
One thing is clear though – it’s time to get your financial house in order and prepare for mortgage repayments to escalate over the coming year.
With four official increases last year, including a pre-emptive strike to control inflationary pressures due to the resources boom in November that took many by surprise, some experts think the RBA will hold off on any further rate hikes during the summer months of 2011.
Speaking to ABC on-line, Westpac senior economist Huw McKay said, “They recognise that the household sector is under some pressure on the basis of the level of interest rates that are currently prevailing.”
“They’re on hold for a little while, but I think the market could get a little too complacent if they extend that on-hold period into the second half of next year.”
Westpac and ANZ both anticipate that the next move from the central bank will come during the second quarter of 2011.
ANZ economist Ivan Colhoun, says the RBA’s December minutes confirm that they do not feel the need to move on the official cash rate any time soon, “Or as high as in the previous phase of the terms of trade boom in 2007 and 2008, as long as the consumer remains so restrained.”
The RBA said if consumer restraint continued, “[It] would provide some scope for investment to rise without causing aggregate demand to grow too quickly and inflationary pressures to build.”
Commsec chief economist Craig James, says with the RBA maintaining tight monetary policy already, they are all too aware that a small increased in rates could have a large impact on consumer spending, “because debt levels are much higher than in the past.”
He thinks two increases in 2011 are likely, while according to a Reuters survey of 20 economists, the median expectation for interest rates by December 2011 is 5.5 per cent.
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