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Fix or Not to Fix

  • Amanda Varidel
  • Jul 23, 2014
  • 2 min read

Over the last 20 years, the Reserve Bank’s cash rate, has fluctuated between 2.5 per cent and 17.0 per cent per annum.

Since August 2013, the rate has remained unchanged at its record low of 2.5 per cent, and although it might move slightly, it is likely to remain at this point for the time being.

The Reserve Bank of Australia alters interest rates with the aim of achieving its target levels of sustainable growth in both demand and inflation. Since the start of 2014, growth has become firmer with moderate growth in consumer demand as well as a strong increase in housing construction. Property prices have increased marginally over the past year, rising an average of 10% across Australian capital cities from March 2013 to March 2014, according to ABS figures. However, there are some signs of a moderation in the pace of the recent growth.

The governor of the Reserve Bank, Glenn Stevens, announced that the current monetary policy should support demand and help strengthen growth whilst keeping inflation consistent at 2-3 per cent over the next two years. The board recently announced, “Given this outlook for the economy and the significant degree of monetary stimulus already in place to support economic activity, the board judged that the current accommodative stance of policy was likely to be appropriate for some time yet.”

If rates were to drop further, there would have a valid reason for mortgage holders to fix their rates. By fixing the interest rate, any changes made by the Reserve Bank would not affect the regular repayment amount. With rates probably rising in the longer term, consumers who fix rates now would prevent their rate from rising during the fixed period – but it is also important to consider that if rates were to drop, consumers would still pay their fixed rate, which would be relatively higher.

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Stu Varidel AR 324007 and Your Choice Financial Planning Pty Ltd ABN 80124246877 trading as Heart Financial Advisers CAR 323623 are authorised representatives of Sentry Financial Services Pty Ltd ABN 30 113 531 034 & AFSL 286786.

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