Planning ahead: RBA says expect long-term low interest rates

Good news for mortgage holders, with the RBA saying “it’s reasonable to expect an extended period of low interest rates”.

Figures released in July show that core inflation, the RBA’s preferred measure, is currently at 1.4%.

However, Reserve Bank of Australia (RBA) Governor Philip Lowe says it is highly unlikely the RBA will contemplate higher interest rates until it’s confident that inflation has returned to 2-3%.

“Whether or not further monetary easing (aka further rate cuts) is needed, it is reasonable to expect an extended period of low interest rates,” he said in a speech.

“On current projections, it will be some time before inflation is comfortably back within the target range.”

How do low interest rates help the economy?

For a country with record levels of household debt, long-term low-level rates will be a welcome reprieve. So long as the banks pass the cuts on, that is. Paying less on mortgages should, in theory, free up cash for homeowners to either reduce debt further or spend up big, stimulating the economy while they’re at it.

For the economy as a whole, there are those who suggest that this downward trend of interest rates will result in lower inflation and lower economic growth, having a flow-on effect on the strength of the AUD. Retiree’s will also be feeling the pinch with their cash savings earning a lower interest rate. Low interest rates also encourage excessive risk-taking. With people taking out lending facilities at low rates to avoid “missing out” they are often failing to plan for the inevitable rate hike that will, at some stage, follow.

But what about me?

For the business borrower who wants to take advantage of the current low-rate position, now is the perfect time to look into refinancing high-rate debt. Refinancing can help free up cash leaving this available for debt reduction, reinvestment into the business, or to build a cash supply for those ‘just in case’ moments. The forward planning business owner is looking at the current rates as an opportunity for growth.

Get in touch

If you want an update on what the RBA’s latest comments on long-term low-interest rates mean for your current home loan situation, please get in touch.

We’re following the market closely and will be happy to run you through refinancing options to support your business.

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