No one knows where rates will go
OMEBUYERS are in for a rocky ride because interest rates are on the move. The cash rate is 3 per cent and the standard variable rate is anywhere between 5 and 5.8 per cent. The experts are divided about what is going to happen. and rising unemployment will push cash rates down to a low of 2.25 per cent by Christmas. When will interest rates start rising and how much will they go up? Rates are likely to start rising from around mid-2010, returning to about 6 per cent over the next two or three years. Borrowers should be locking in fixed-rate mortgages over the next six months or so. Investors should be planning for the recovery in shares. Interest rates are on hold for the remainder of 2009, then heading back up next year. When will interest rates start rising and how much will they go up? What should people plan for? Unemployment will determine interest rates. Modest increases in unemployment will probably mean steady rates for the remainder of this year, but a sharp increase in unemployment will probably push rates down 50 basis points. The degree of pass-through by the banks may be minimal. People should not expect low interest rates to stay. Will the next interest rate move be up or down and when will it happen? Futures markets are mostly forecasting the next move to be up, but there is little agreement when this will be. How much further will interest rates fall? The economic conditions that prevail over the next six months will determine the next rate movement. If conditions deteriorate there is a possibility they could move down. It’s most likely they will remain flat for some time. When will interest rates start rising and how much will they go up? I think rising interest rates could still be a fair way off. Futures markets are pricing in an increase next year.