I guess this is the million-dollar question and if we had access to a crystal ball this would be easy to work out. Unfortunately, we do not have access to a crystal ball, but we can make our best guess. There are some obvious signs that show interest rates are likely to increase. I think the question now is when.
This is the biggest indicator showing that Interest rates are likely to increase. The price of everything is moving up. I was talking to a local builder the other day who has said that the cost of materials for one of the big jobs he is working on has moved up 40k. As you can imagine the client was not too happy. The price of 2nd hand cars has soared over the last year. Normally a depreciating asset now appreciating due to supply shortages. I have summed up inflation in short below.
Supply shortage + Cheap credit = Increased costs.
Basically with the supply shortages that we are having across the world due to Covid combined with cheap funding due to covid is causing prices to soar. The Reserve banks main tool to battle inflation is Interest rates. If they increase rates the cost of borrowing becomes more expensive. This in turn will make people consider how much they are paying for things and should pull back demand.
Where do I think rates will go?
My best guess is that the Reserve Bank will basically reverse the 1.5% drop that they put in place for covid. The drop has worked, it has got people spending and confidence is at an all time high. The Reserve Bank will be careful not to reverse all the good work they have done. I think we will have the 1 year rate back up at around 4% over the next 2 years. I am advising most people that want certainty to go for the 3 year rate at 2.99%. It’s a good rate and it give a degree of certainty in these uncertain times.
The above is all opinion and I no way to intend for this to be advice. I would always recommend reaching out so that we can look and your individual scenario and make the best plan that suits you.