WHAT IS IN STORE FOR INTEREST RATES IN 2014?

After the Reserve Bank’s first meeting of 2014, I thought you might be interested to hear what might happen with interest rates this year.

As widely expected, the RBA have kept the cash rate on hold. Their statement companying the announcement (Media Release/2014) notes that “the global economy has been consistent with growth having been below trend in 2013 but with reasonable prospects of a pick-up this year”.

While the US Federal Reserve have started the process of reducing their stimulus measures, the RBA note that financial conditions remain very accommodative (i.e. economy-boosting).

The RBA are no longer saying the Australian dollar is “uncomfortably high” although they do state that “further decreases will assist in achieving a balanced economy”.

They expect growth to remain below trend “for a time yet” and unemployment to rise further before it peaks. Beyond the short term, growth is expected to strengthen, helped by low interest rates and the lower exchange rate.

They pretty clearly state that rates are at the right level for the moment and will remain there in a “period of stability” for the time being. Economic commentators mainly seem to think that there will be no further rate drops (with a few still predicting one more) unless there is some serious economic event, and the question is then, when will they start rising – some predict later this year and others early 2015.

Beyond that, the RBA have pointed out that long-term interest rates remain low. To give you an idea of current rates, 5 year fixed rates are in the range of 5.6% to 6%.

As always, if you have any questions about this or wish to discuss your situation, please let us know and we would be happy to call or visit.

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