The Reserve Bank have met yesterday (7.06.11) and again announced that interest rates are to be left on hold. The recent turbulence on the share market, rising Australian dollar and mixed signals in financial markets and economic data will have all contributed to this decision.

Most industry pundits are still speculating that we will see rate rises in the coming months, what varies is the opinions on what these raises might be and when.

While I am certainly no economist, I tend to disagree with some of the “experts”. For a start you need to look at the angle these comments come from. It seems to me many are from the BIG 4 and they are attempting to pre condition the RBA and the market for future rises. We all know their history of rises over and above RBA rises!!

Yes employment is low and inflation is rising, but inflation seems to somewhat be under control. With our dollar being so strong it is hurting our balance of payments in the economy and especially hurting some of our exporters. If rates were to rise this would put even more upward pressure on our dollar, something that would hurt those exports even further.

So while the RBA has to keep an eye on inflation it also has to keep an eye on the country’s ability to export in a competitive manner, if rising interest rates slow inflation they also increase the power of the dollar so it is a very fine balancing act the RBA will need to play in coming months.

Therefore, speculation is just that, speculation. We may not really know where rates are headed until an actual announcement is made or the financial markets and economic data becomes more stable.

At times like these people wonder should they fix home loans or leave them variable. To answer that I will say there is no ‘One size fits all’ solution. Fixing or not will be determined by every individuals personal situation and you should seek our advice and know the consequences of fixing, both the advantages and disadvantage, before making your decision.

Remember: ‘If you think you can or you think you can’t. You are probably right.’

Keep positive.

Mark Powers
Finance Broker

59 Derham Street Port Melbourne 3207

markp@financementors.com.au