RBA interest rate rises explained

RBA interest rate rises explained

10 November 2009

The Aussie economy has weathered the recent financial storm better than all other developed countries. That is something to be proud of. Like most good things however, it comes at a price, and that price is going to be higher interest rates.

Why do interest rates shift?

The Reserve Bank of Australia, the government’s banker, uses short-term variable interest rates to slow down or speed up our economy. When the economy is struggling, rates drop to stimulate the economy. If these rates remain too low for too long overspending and borrowing can result in rising inflation and the risk of an overheated economy. An overheated economy can lead to a bust which is not good for anybody.

Due to the Global Financial Crisis Australians have recently been enjoying nearly 20 year record low interest rates. With the economy stabilising the RBA, government and economists are all predicting interest rates to rise in the coming months. The Reserve Bank governor, Glenn Stevens, recently hinted that rates will be returning ‘towards more normal levels’.

Any future rate rises will place greater pressure on our bank balances and this could lead to problems for some. So, how can you avoid failing to meet your morgage repayments?

Be prepared

Before the Global Financial Crisis took hold, consumers were dealing with interest rates of between 8 and 9 percent. Although we might not see these rates again soon, the RBA governor warned home buyers to factor in rises of up to 2 percent over the next 12 months. Start planning ahead:

• Factor in the higher cost of your monthly interest repayments now
• Minimise your home loan balance by paying off as much as you can at lower interest rates (over and above your minimum monthly repayments)
• Get in touch with our friendly staff or make an appointment with our financial planners, they will help you improve your financial future.
• Don't be afraid to contact us if you think you might experience difficulties. We are here to help.