John Edwards, former member of the RBA, has predicted that the RBA will attempt to achieve a cash rate of 3.5% over the next two years. He states that eight increases of .25% in 2018 and 2019 are a distinct possibility.
Mr Edwards explained that the RBA:
“would think of a sustainable or natural policy rate as at least 3.5 per cent and, most importantly, it will want the policy rate increase to match the forecast improvement in Australia’s economy performance, so it will want to be at 3.5 per cent (at least) by the end of 2019”.
We think that while a 2 percent increase over the next two years may be a steep climb, we agree with Mr Edward’s sentiments that the RBA will attempt to achieve to bring Australia’s official cash rate to more traditional levels. In turn, this is likely to increase mortgage rates for both investors and owner occupied home loans.
The figure of 7% comes as a comparison between today’s average standard variable rate of approximately 5% plus the cash rate’s increase of 2%. While bank rates do not strictly follow the cash rate, they are heavily influenced by its fluctuations. For this reason we believe that rates are likely to settle between 6.5% and as high as 8% in the coming years.
If you are considering a long term fixed rate to combat rate hikes, please call us on 1300 841 841 to discuss your options.