Rates dilemma: to fix or not to fix

Anthony Ishac, 11th October 2010

THE Reserve Bank's decision last Tuesday to keep interest rates on hold for another month is a reprieve for the property market and good news for both buyers and sellers. The announcement surprised most of the market, which had expected another 0.25 per cent rise based on strong employment, solid June-quarter economic growth and a much more urgent attitude from the RBA in recent speeches.

The decision will, however, increase the likelihood of a rise in the official cash rate in November, particularly if September-quarter inflation figures, which will be published in late October, push the underlying annual inflation rate outside the RBA's target range of 2 to 3 per cent. Whatever happens in November, there is little doubt that in the medium term we'll see another series of rate increases as the RBA wrestles with a powering economy and inflationary pressures.

Recent interest rate uncertainty has meant that, according to RBA data, fixed-rate mortgages have been at the same level as the standard variable rate for the first time since early 2009. With the RBA indicating further rises are on the cards, the opportunity now exists to lock in a three-year rate which may well be below the standard variable rate in a few months.

Anthony Ishac is general manager of the Fairfax Media-owned Australian Property Monitors.

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