Interest rates on hold over Christmas

I think we all breathed a sigh of relief last Tuesday when the Reserve Bank of Australia decided to leave interest rates unchanged for the month of December after raising them to 4.75 per cent from 4.5 per cent last month. 

In his statement after the announcement, RBA governor Glenn Stevens commented that the board saw the current monetary policy setting as appropriate for the economic outlook.  He also noted inflation is expected to see little change over the next few quarters, which suggests that the RBA may just leave rates on hold for a little while yet. 

In any case, the RBA does not meet in January unless under exceptional circumstances, so it seems borrowers and prospective buyers are safe until February at least. 

For mortgage holders the decision is a welcome one and means we don’t have to worry about finding the extra money needed to meet increased mortgage repayments for the time being; instead we can relax and focus on enjoying Christmas and the upcoming holiday period. 

For those who are looking to take on a mortgage to buy a property, hopefully this hold on rates will afford a little bit more certainty about making a purchase and committing to a loan.  

Good news aside, as I have said in other blogs regarding interest rate holds, this RBA decision provides an excellent opportunity for current and soon-to-be mortgage holders to prepare for future rate increases.  Economists are already predicting that the RBA may see a need to tighten monetary policy by the second quarter of next year. 

Try to use this time to plan for interest rate increases.  Consider your budget and look at where you can afford to put little bits away here and there so that if your monthly repayments get larger, your household resources will not be strained too much. 

For example, if one month a bill is less than expected, instead of spending, save the extra amount that you had allocated to the expense.  It is definitely true that a little can go a long way, and you will appreciate having a pool of savings to help lessen the impact of larger mortgage repayments if they arise. 

But for the meantime, you’ve now got at least another month where you don’t have to worry about interest rate rises, so enjoy! 

Posted by Charles Tarbey on 13/12/2010 at 9:37 AM | Categories: Finance - State of the Market -

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