Interest Rates to Remain Unchanged

interest ratesThe Australian government expected reduced cash rate to bolster the ailing construction industry and real estate. In many ways, they were proven right and in the last year we have had many reasons to be joyous in this regard. Sydney is passing through its best real estate phase in a long time and the reduced cash rate has a lot to do with it.

Low cash rate a boon for FHBs

It has allowed pretty low interest rates to prevail for long and in doing so it has brought to the fore a variety of easy-on-mortgage loans. The RBA has decided to keep the cash rate unchanged and this spells out a spread of bonanza for all hierarchy of investors. Not only will the investors benefit from a melange of fixed and variable rate loans, the fraternity of first home buyers will also be looking to maximise their opportunities.

FHB’s enduring crisis

For long, the FHB segment has been beset with the ‘investor hurdle’. Investors are being increasingly enticed towards the ‘property’ pie and stiff competition between them has spiked the prices to a point where it has become just too exorbitant for the FHBs. In such a scenario, a climate of reduced interest rate serves as a panacea for the FHB.

Inflation

Low cash rate will also facilitate low exchange rate and in times like these, it can herald an expansion of economic activities. This said, we need to keep looking closely at the inflation. It will be wise to substantiate that real inflation is different from nominal inflation, given the kind of household income leaps Australia has been witnessing. Inflation read in ‘real’ light will quantify the kind of economic escalation we are ready for without putting too much stress on our intrinsic economic fundamentals.

The property market has seen the light of day after a continued doldrums period. It will be interesting to watch how government works out the cash rate in a long run, having succeeded in translating its credentials to empower the property market so far.

How do you see the fixed rate moving from here?