Interest Rates on Hold until 2020

The interest rate has been on hold for almost 2 years - how much longer will this rate remain?

The following article discusses why the RBA may not move interest rates until 2020.

Interest Rates On Hold Until 2020 | investing.com

 

Additional cut could be in the RBA agenda as the current rate has not created enough momentum of economic growth.

 

AUD drops enough they will raise interest rates - raises cost of overseas funding from USD derived markets. Banks will continue to raise rates regardless due to higher cost of capital and likely higher capital requirements due to Royal Commission.

 

AUD to USD fair and good for the economy exchange rate has been expected to be at around 0.70 or below that.

 

Given Westpac's budget forecast for Australia to go back into surplus by 2020. I'd say 2020 is the year we start to see interests rate movement.

 

Basel 4 is certainly going to have an impact.

 

APRA enquiry has added a billion to CBA's capital requirement according to Business Insider. I can see this happening more.

 

The forum has the same conundrum as the RBA... up, down.... or just sideways for years to come...

 

Moot question as long as you have cash buffers and etc in place.. If you're worried about rates and they're increasing, not the point of the OP I know you probably shouldn't be considering getting into debt..

I'll play the game though rates are unlikely to stay on hold and/or go down!

 

Using RBA’s own forecasts released recently...a while yet. No inflation pressures + spare capacity + low wage growth = low rates.
Once something new changes the above, it’ll likely be steady as she goes for a while.

 

Its looking increasingly likely that we are going to stay in a low rate environment for a good while yet. Just the threat of rate rises tipping P&I re-sets over a cliff is probably enough for them to be afraid to lift.

Still calling a 30% chance of an RBA reduction in 2019

 

I dunno if its quite "moot" . A 30 year loan reverting to P&I after 5 years IO brings a a repayment increase of over 50%. So even if you have a full year of your current IO repayments sitting as a buffer right now, that would be swallowed in a little less than 2 years. To survive 6 , 8 or 10 years while you wait for rents to slowly increase so that you can get your properties to somwehere approaching neutral or neutralish , youd need 3 , 4,5 years of todays annual IO repayments in buffer, per property. And thats money that could otherwise be going onto your PPOR.

If we are a little more generous and calculate that the P&I rate re-sets 40-50bpts lower than the current IO rate, that reduces the problem to @ 40%...so 1 years IO repayments buys you 2. 5 years after the re-set. Still money that could otherwise be going onto your PPOR

However you look at it, its no moot point methinks...

Id much rather have properties that can run P&I without buffers being required.... allowing me to focus on PPOR debt reduction. And if I have no PPOR debt, I'd focus on INV debt reduction. Either way, I know which one of those two positions I'd rather be in. ie CF+ or .... not

Just this week Ive had a handful of property chatters contact me to tell me their loans are re-setting and the new repayments may send them to the wall. This is very real...

Ive proactively advised my clients to migrate to P&I earlier than the 5 year mark. many were on 3 year fixed with 5 years IO so they can go after 3 years...a full 2 years before the IO term expires. Ive moved just over 50% of my total loan volume across to P&I early,as well.

get ahead of the curve. It doesnt matter what the RBA does. Its what your bank is going to do under the 30% IO quota that matters.

 

Problem is its all based on things that the RBA thinks it knows.
There are lots of things that it has no control over , mainly to do with events happening overseas , that in the past has caused Australian interest rates to go up, either directly or indirectly , like a flow on or ripple effect .
In an economy in good shape it has little effect.
But when you have households mired in debt it can have far reaching consequences.
Its a bit hard to try and stimulate an economy when you already have interest rates at emergency levels with little or no effect, and its been there for a long time.

 

Well, the thing is, we do have a lot of control over this thing because its 'man made'. It's not an economic downturn or a global phenomenon, or a true oversupply of properties.

The taps CAN be turned back on to a degree and the blow softened. Whether APRA do that or not if things get tough, we'll just have to wait and see.

 

They might go up as our dollar is expected to drop then I expect interest rates to drop again to 1% if not less

 

In January Morgan Stanley predicted a scenario in which RBA might further reduce the cash rate in 2018. The current dynamics of economic indicators supports the assumptions made in this forecast suggesting a rate cut could happen soon.
Morgan Stanley says these 3 factors could lead to a shock RBA rate cut this year

 

Banks offering recently reduced rates of around 4.6% P&I for IP on fixed rate or 3.7% P&I for OO are not doing it out of the goodness of their hearts - they see rates going down over the next 2 years (2 year fixed is best offer).
That's probably just them competing with each other again. I don't see why the RBA should put rates down further even if evetything turns to muck (looking unlikely). Past moves down did not produce intentions at all. They have said that next move will be up so it's just a matter of time when that will be.
Read the tea leaves - not going anywhere. Nevertheless, get a fixed rate and make the most of it. Anything under 5% is still amazing!