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Interest rates will rise

Interest rates will rise

May 21, 2011

In the period from October 2009 to November 2010, Australian homeowners were hit by seven interest rate rises but since Melbourne Cup Day last year, the official cash rate has remained steady at 4.75 percent. But the honeymoon is about to end, according to finance experts.

Commonwealth Bank CEO Ralph Norris predicts one, or possibly two, rate rises before the end of the year and said these would translate to home loan interest rates. Both JP Morgan and St George were predicting August as the most likely time for a rate hike.

The Reserve Bank of Australia’s (RBA) recent quarterly statement on Monetary Policy stated higher rates were “likely to be required at some point”. Factors placing pressure on interest rates include the RBA’s expectation that inflation will reach 3 percent by December – one year earlier than anticipated; the acceleration of the resources boom; Queensland’s natural disaster rebuild and increased pressure on the labour market.

However, there is light at the end of the tunnel for homeowners. Citi chief economist Paul Brennan has predicted that although official interest rates will rise before the end of the year, they will not continue to do so significantly over the next 12 months.

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