No one knows where rates will go

Herald Sun - Property - - Front Page -

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.

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