I met with UBS Investment Bank during a function on Monday, who gave some very interesting insights about the Reserve Bank of Australia (RBA) and their thoughts on interest rate rises.
UBS Economists predict that with the improved business investment outlook in Australia and a positive view on the improving global economy, we can expect the RBA to completely move away from the current 3.25% cash rate to a more 'normal' 4.25% by the end of March next year, rather than gradually raising the cash rates through to the end of 2010 as previously forecasted.
We can also expect the RBA to another hike 50 basis points (0.5%) before Christmas (with the risk of a 50 basis points move in November alone). While unemployment is likely to drift up towards a peak of 6% by the end of June 2010, the labour market should be steadying and fulltime jobs growth recovering. This strengthening will allow the RBA to justify a further 50 basis points increase to reach a still low 4.25% cash rate by the end of March 2010.
Economists at UBS suggest that by September 2010, the RBA will start the next phase of its tightening cycle and we can expect to see further increases towards the end of 2010 taking the cash rate up to around 4.75%, and then rising to 5.5% in 2011.
Make sure you're prepared for the rate rises, either by putting in place a simple budgeting or savings plan or by fixing your home or investment loans to cope with the increase in repayments. Please feel free to email or speak to one of the financial consultants in the office for a finance health check by calling 1300 55 10 45.
