Looks like the Interest Rate Cut Cycle Has Ended for Now

In case you missed it, last weeks inflation numbers showed that annual consumer inflation jumped to 3.2% in the September quarter, above the top of the RBA’s 2-3% target band, driven by higher power and services costs, with energy prices increasing 23% for the year (this is no surprise to anyone paying power bills in their business).

The RBA actually actually prefers to use “Core inflation”. This was 1.0% for the quarter, well above their 0.6% forecast.

Following on from this number, well known economists have now changed their interest rate forecasts from multiple cuts next year to, in some cases, no more cuts at all.

According to Commbank last week:

“We now expect the RBA to remain on hold at 3.60% for a prolonged period” (full report attached below)

This forecast has been echoed by most major bank economists

These reports tell us a few things:

• a reminder to always manage your risks around investing and borrowing irrespective of economic news and forecasts, all forecasts can change on a dime

• Perhaps the strong growth in property prices could be moderating for now

• If you are waiting for more interest rate cuts to be able to borrow more, thats probably not going to happen and its probably as good as its going to get for a while.

At present, there 2 year fixed rates in the market are around 5.00-5.20%, a significant discount to variable rates. Compared to a variable rate of around 5.50%, we are recommending that locking in some of your mortgage into a fixed rate now would not be a silly idea. If rates are on hold for 12 months, rates would have to fall 4 times in the 2nd year before this strategy did not pay off, which we believe to be unlikely.

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