Fixed rates are going to increase

I certainly hope the inflation genie does get out...... it would be prudent to go early with a 25 basis point hike by Feb 2022. This will startle the markets but also signal that rates will go up and hopefully the housing markets settle from the crazy rises.

These sort of rises are not good if there is a major correction downstream due to interest rates going up to much.

With a 25 basis point hike another 15-25 basis point hike by banks for margin recovery should see most IO investment rates in high 3s...PI investor rates in low 3s...and the OO PI rates in very 2s/ low 3s. This should take some steam off the crazy markets like Sydney...inner Melb/Brissie while letting markets like outer Melb, Brissie and Perth/Adelaide/regional markets to grow. No one wants sudden stop to the market when the RBA brings rates up to 2% plus another 15-20 basis points which will put rates at 4.5-5%.

Personally, the last 2 RBA governors have not been much chop! People like Ian McFarlane...and Bernie Fraser were another level. I believe NZ central bank is more on top of things.

If the inflation genie does get out of the bottle....people better learn to accept rates in 4-5% range!

 

I doubt they will raise rate in Feb 2022 - housing is not their only concern. I would think they will wait to see consistent higher inflation; and more importantly some wage growth.

They can control housing prices through APRA policies. Another increase in % of DTI over 6 in Sep quarter - they can do something about it; and even LVR if they want. I reckon they wont raise interest rate just to control housing price.

But banks seem to raise their mortgage rates slowly in 2022 regardless - fixed rates already moved up significantly. This in fact takes some pressure of RBA / APRA to do anything for housing market.

 

Yep banks doing the work of the RBA...but its is inflation...that is of concern. At petrol prices at 1.89 a litre and transport costs it will flow through in food prices.

As for APRA...they are super slow....policy takes a while.

The banks have only moved fixed rates...the impact is in variable rates movements.

As for a Feb move...that is what I think is prudent...a simple 25 basis point shot over the bow will prevent major rises later on. I believe NZ has moved 75 basis points.

 

There is an inflation print in Jan prior to the meeting.

Nonetheless, the likelihood of any Feb 22 rate rise is very slim (negligible). I think they'll need at least 2 inflation prints that are materially higher than the last one to change their view, which pushes it to the May meeting at the earliest of any realistic chance of rate rises in Australia (very slim). The likelihood of 22 rate rises is still quite low according to the man that matters.

I personally wouldn't be too surprised if we see rate rises at the back end though, but that'll be because the data shows that were tracking far better than expected. E.g. well above expectation inflation prints, unemployment starting with a 3 nationally for the first time in a LONG time, wage growth at decade highs. I.e. the best economic report card the country has seen in a long time. Inflation back at target levels, everyone employed, wages growing.

 

We will see...if the inflation genie is out of the bottle...it will get interesting....

The US and China have inflation over 4%.....USA was at 6.2%...lets see if that keeps going....

 

Making up for the lost decade of inflation 2-3% is what you mean.

 

Has nothing to do with that....issue is cost of money.....supply chains...labor market. This is not good...it could destroy wealth.

Any case lets see...

 

Just had an interesting conversation with ANZ, while I was in the branch for a completely unrelated matter... Out of the blue, the teller said to me "there's currently no break fee on your fixed PPOR loan. Would you like to pay off extra, or convert to variable or another fixed rate?"

Am I too cynical to think they've been told to try and push customers onto variable rates... which will then increase?

It was just a bit weird - I probably will take advantage of the opportunity to pay down another chunk off the fixed loan, but I'm suspicious of a bank being so "helpful".

Thoughts?!

 

Crash 2026, you heard it here….. I have a crystal ball……

 

Bookmark for review.

 

Can I borrow it please?

 

When do we Bevilo Tutto??

Ya probably right....

 

ANZ's turn

 

Wow... really casts my message from yesterday in a new light!!

 

All parties come to an end.

 

NAB messaging people saying the can help people in times of hardship. what do they know??

... economists: max pain 3.75% EOY 22

 

Naah....not if ya sing Bevilo Tutto!

 

This is quite extraordinary. If I compare ANZ’s like for like loan that I fixed with another bank three months ago, ANZ’s is 1.30% higher. That’s over 5 25bps interest rate rises!

 

As I said a year or so ago when the ultra low rates hit the market - it was going to last about a year.

As I said again in June - by January or February 2022 we will have seen all the sub 2% fixed rates gone and replaced by mid-high 2's... its just a function of higher cost of funds. The banks are replacing an artificially low ( and temporary) funding mechanism with a market priced funding mechanism. In other words- normality is returning to fixed rate funding costs.

As I said a couple of months back... you'll see several incremental rises between now and February but you'll also see them starting to sharpen the pencil on variable a bit as well.

And as I also said, the boom will run out of wind by early 2022... that doesn't mean a correction. It just means the trajectory will slow. Perhaps it may even stall. But whether it stalls or not, it will definitely slow down ( probably quite a bit ) as we get into March, April 2022 and beyond.... UNLESS migration kicks off in big numbers or UNLESS we see APRA reverse gear or open up 40 year terms.

 

My ANZ bank manager told me that one of her client's had three rate increases during the whole process.