Wayne Swan delivered to us his third budget yesterday. And while you’ll be pleased to hear that I am not going to get into a political debate about the pros and cons of it, I think it is worth analysing some of the numbers and how it could potentially effect interest rates in the near future.
It would seem that riding on the back of Australia’s mining boom, the economy is heading for some rapid expansion in the coming years with all of Mr Swans projections pointing towards rapid growth.
If we take a look at just two of the key projections:
4% GDP Growth by 2011 – 2012
4.75% unemployment rate by mid 2012 (bordering on what is referred to as ‘full employment’)
It’s difficult to come to but one conclusion; upward pressure on interest rates. We know that the Reserve Bank of Australia is rightly keen to keep a lid on inflation. And in order to do that, with the economic projections that the Treasurer announced, the main way to try and control the inevitable inflationary pressures that such growth will produce is through monetary policy… i.e. interest rates.
Indeed, when asked on ABC’s Lateline Business as to how big of an issue do you think inflation will be, AMP Chief Economist Shane Oliver said that “ I’d have to say there’s certainly a risk on that front. We’ve seen the Reserve Bank progressively revise up its inflation forecasts in recent times.
My feeling would be probably more towards the top end of the target range, up towards 3 per cent.
My feeling is that with the terms of trade boost to the economy, pushing growth up, the likelihood is we’ve got more upside in interest rates to go, probably up towards 5 per cent by the end of this year and maybe up to 6 per cent by the end of next year.”
On the same program, when asked if he agreed with that forecast, ANZ Chief Economist Warren Hogan said that “We certainly would and that’s what we’re forecasting. This economy is going to require some restraint from monetary policy.”
So what does this mean to Mr and Mrs Mortgage Holder?
Mortgage rates in the 9’s! And with the potential for more market volatility, the bank may be under pressure to maintain margins by increasing rates further.
This makes mortgage reduction more and more important to you. With the cash rate currently at 4.5%, and extra 1.5% to the forecasted 6% would add an approximate $300 per month to the average 30 year, $300,000 mortgage.
To avoid the pains of interest rate rises, speak to us today to see how much quicker you could pay off your mortgage using our tailored mortgage reduction package.
