Interest rate rises in the next year: Will they or won’t they?

After having so many interest rate rises over the past twelve months, it’s been quite a pleasure since May to not be anxious about the increase of my monthly mortgage repayment, since the Reserve Bank (and fortunately, my bank too) have seen fit to keep rates stable. But it’s probably not safe to assume that this pleasant state of being will continue indefinitely: or is it?

Whether or not interest rates will rise much in the next year or so is really a question of who you ask. There are plenty of different opinions around. According to the futures market, at least, stable interest rates, or almost stable, might be here to stay for a while. They say that the futures market is banking on just a one quarter of a percentage point rise in the cash rate over the next year, which is small enough to be barely noticeable, I think. I’d like to think that futures market analysts are the ones who’ve got it right.

However, there are plenty of other experts out there who think they’ve got it wrong. For a start, positive employment statistics released last week have people amending the first quarter of a per cent rate rise to earlier in 2011 rather than later; others think there will be multiple rate rises in that time. The reason for this has to do with the unemployment rate and the relationship to increasing wages. If unemployment gets too low (usually a good thing!), then wages start to rise and in order to stop the economy from getting carried away with inflationary wages, the Reserve Bank would then usually need to increase interest rates further to slow things down again. Basically, it looks like the majority of the experts think Australia’s economic growth in the near future, barring another global downturn, will be too strong to keep interest rates as they are. Which is good for Australia but a pity for my pocket, at least in terms of my mortgage repayments!

Discuss