[Edited transcript below]
We know interest rates are a hot topic on the back of the RBA increased interest rates for the fifth consecutive month in a row, each of which have been the worst kept secret in the world. There was a good analysis on this from BT, which is part of Westpac.
I want to share a couple things with you, when we’re talking about interest rates. Essentially, it’s all about inflation at the moment and where they’re trying to tame inflation.
And what we can see here on this top graph is a prediction on where the RBA thinks inflation is heading. Now, the blue line is what we’ve already seen, a really huge spike, and that’s why we’re in this sort of a situation right now where we’re having to continuously hike interest rates. The red line is their prediction – what they’re predicting is that inflation will get a little bit higher, but then collapse right back down to sort of a reasonable range, somewhere in 2023-2023.
What’s interesting about all this is that, or I guess the best way to think about it is that this indicates that the RBI thinks this inflation issue is a short term issue. They’re going to have to hike rates very aggressively to try and tame it, but once inflation comes back down again, they’re predicting the rates will fall quite rapidly.
Above is the cash rate actuals and expectations chart. Blue is the current and what we’ve seen, and then the red is the predictions moving into next year. With these rates going up really quickly, we’re going to see some economic carnage and damage, but there’s a strong chance according to this that the RBA will be cutting rates again, as soon as next year. Like I mentioned, this report from BT includes some in-depth analysis to say, based on last week’s RBA decision, they’ve hiked cash rates to 1.85%, and they’ve forecasted they’ll continue hiking rates up to 3.1% which says to me that mortgage rates will be sitting at 5-6% at that point.
But then they’re saying, we see the peak in the cash rate occurring in early 2023 and thereafter the RBA will turn to cutting rates.
So we hope that helps and gives you peace of mind that this is anticipated to be more of a short-term problem than a long-term problem. Again, if you’ve got any questions, give us an email and we can discuss the four or five tips to try and manage your position.
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