This month, we’ve avoided a 13th interest rate rise…..just. The RBA decision on Tuesday to keep rates on hold for another month was of course a welcome relief, however it really is only a reprieve not a stay.
Unfortunately, the RBA are on a hiding to nothing with trying to balance high inflation in a low unemployment market. Costs have gone up you can’t deny this, we are all paying more for – electricity, groceries, council rates, rent and of course our mortgage rates. But the economy still seems to be awash with money. Yes there are pockets of tightness, but if you’ve got social media you have no doubt seen a number of your friends and family have gone overseas to Europe, London, America, Canada and of course early in the year just about every Australian went to Bali (or at least it seemed like that). And who can blame them, we’re in the middle of winter I’m sure it’s a damn site finer on the other side of the world (although based on the pictures my friend posted from Iceland I think it’s warmer here in Merimbula) anyway I divest.
The issue I see, is the fact that while everything is going up, we are still plodding along, that is staying afloat. We’re paying our bills and we’re managing our budgets. Which is a good thing, and clearly those people travelling have saved the money or had surplus cash to put towards their trip, and good on them, I can’t blame them. Hence why I say the RBA is on a hiding to nothing. So, I think until we see more unemployment, less people travelling, less going out to restaurants and cafés, we are still going to see rate rises going on into the future.
I had said previously that at 6.00% there was a psychological barrier and people would stop spending. That 6.00% is the rate that you pay. (And when I talk about that I mean for owner occupied housing loan on a P & I basis). I’m actually feeling, from talking to others that that’s not the case, I think maybe 6.50% is that new point for people to stop spending and really get their budget in order. And I feel this is the point that the RBA trying to get to, but they’re not there yet.
So I think there’s at least another two rate rises probably August and October, but the scary part is I don’t think we’ll see rate reductions until mid-next year, and I thought they might come as early as February.
The other thing I think we have an issue with is the many inflation results, that is we have inflation, core inflation, CPI, underlying CPI and that all this is a little bit too confusing for mine. I think this was a product of the last government, but the current government have continued on their numerous measurements of the economy.
Bottom line is until we see people out of work and spending stopped will continue to have interest-rate rises as the monetary policy from the RBA.
I have said this before, but the official cash rate is actually meaningless to you, it’s what you pay that matters. Currently we seen new to bank business at about 5.84%, with still most owner-occupied housing loans being either just under or just over 6% (if yours are any higher reach out to me urgently). Of course, if your loan is for investment that is higher again and interest only is higher again etc. We continue to do six monthly rate reviews for all our loans, and you will regularly hear from Kirsten however if you think your rate is out of kilter please reach out to me and will review for you.
If you’d like to have a discussion about anything here, or are finding your budget is tight and you not coping I’m here to help. I sat down this month with a few clients to review their budgets and gave them some peace of mind and useful tools to determine where their excess spending is coming from. If you think that would help of course, please reach out to me and will get things rolling for you.
