Interest rate hikes predicted for second half of 2011

April 5, 2011

With interest rates at a record low, is now the time to look at fixing your mortgage?

Due to a combination of the Queensland and Victorian natural disasters, low inflation, an increase in private investment and ongoing consumer spending, the Reserve Bank of Australia (RBA) has held off on raising interest rates. In March, the RBA announced the cash rate would remain at 4.75%, where it has been since November 2010.

However, some experts are predicting an end to this honeymoon period with a rise expected within the next few months. According to ICAP senior economist Adam Carr, “The way the data flow is going, particularly the sharp pick-up in consumer spending, I don’t think a rate hike should be too far off.”

HSBC chief economist Paul Bloxham added that he did not expect the central bank to lift the cash rate until the second half of the year and that it would be 5.25% by year’s end. AMP Capital Investors chief economist Dr Shane Oliver said he expected the Reserve Bank to keep the cash rate on hold for the next few months with a possible hike by mid-year. “That’s when rates will start to head higher, mainly again on the back of the boost to national income and the boost to business investment,” he said.

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