After yesterday’s announcement from the RBA many people are asking in which direction are interest rates heading? After months of continuous speculation about interest rates moving up, the most common view is that rates are now firmly on hold with only a slight chance of a movement in either direction.
The 90 bank swap rate is quite often a very good indicator of where rates are heading. For the best part of 2 years the swap rate has been hovering above the RBA’s cash rate which indicates that rates are likely to be moving up. In recent weeks however the swap rates have fallen and now sit in line with the RBA’s cash rate at 4.75%, indicating a period of stability for interest rates.
Whilst the RBA’s stance on interest rates is likely to remain stable for the short term, our medium to long term view is that rates will continue to rise as we see the effects from the mining boom begin to filter out into other parts of the economy.
In the interim though there is some form of relief for households with banks now furiously fighting for consumers as the mortgage market continues to show signs of coming to a standstill. Fixed rates over a 3 year period have come down to as low as 6.39% for three years fixed and variable rate as low as 7.05% meaning some of the RBA’s work has been done for them and allows Glen Stevens more time to sit on the fence and ponder his next move.
