Did that scare you?

When the Reserve Bank of Australia met in November 2020 they made a promise that the cash rate will stay at 0.10% for 3 years. In November our economy was just starting to recover and consumer confidence and sentiment was slowly returning.

Fast forward to March 2021, 5 months on and our house prices are seeing the fastest growth rates in years. One of the causes… Low interest rates.

Low interest rates improve affordability, which essentially means you can borrow more money from the bank. Many people are willing to pay more for a property when they know the bank will lend them more (this is not necessarily the best strategy).

What happens when the Reserve Bank of Australia needs to put measures in place to curb house prices before we head towards unsustainable property values?

As financial markets, in particular the bonds market have already factored in an interest rate rise next year, it will be interesting to see if the Reserve Bank of Australia will be forced to increase the cash rate earlier than the planned 3 years.

Do you think the cash rate will increase in the next 3 years?

“He who lives by the crystal ball will eat shattered glass.” – Ray Dalio

Thank you for reading