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Covid came along and no government in the world quite knew how to respond… they planned for the worst.

  • We were all locked up.
  • While they developed a vaccine.
  • Which meant businesses and people lives were about to be financially destroyed.


  • Created Job Keeper to give people income.
  • While keeping them attached to their businesses – and business owners received assistance to help.
  • Yes – we have a large debt – but even in hindsight – it saved the country.

The Reserve Bank dropped the cash rate to 0.1% – an astute move for the time… and they are now raising that cash rate back to more normal levels.

BUT – the Reserve Bank did something VERY unusual for Australia – they bought 3-year bonds in such huge quantities that they “guaranteed” that the three-year bond rate would be at 0.1%.

They “created” a 3-year fixed rate of 0.1% and then sold that money to banks – who simply added a margin – name it – 1.8%, 1.9%, 2.0%.

So, banks heavily sold 3-year fixed rate loans risk free at 1.9%, 2.0%, 2.1%.

VERY high proportions (for Australia) of loans in the marketplace were fixed until 2023 to 2024.

We came out of Covid more quickly than expected (didn’t feel “quick” at the time though) and oopsie – Russia decided to take advantage of the situation and invaded Ukraine, sending the cost of oil, coal and gas sky high.

TWO surprises brought the Reserve Bank undone – how so?

Well inflation took off (because oil, coal, gas find their way into the price of everything) and because China (the warehouse and factory of the world) was still in lock up.

So, the Reserve Bank did its job and started to raise the cash rate – a blunt tool – but it’s their only tool.

What was wrong – is the perennial FIXED vs VARIABLE debate.

The cash rate is VARIABLE.

But – as I alluded – very unusually the Reserve Bank decided to use FIXED to solve the Covid problem.

In hindsight this was a monumental blunder on their part – and we are all paying the price for that blunder.

This is where the Reserve Bank Governor’s “rates will stay low until 2024 “promise” completely unraveled.

He wants to raise rates to dampen inflation – but his VARIABLE tool has NO IMPACT on people to whom he actively supported into FIXED rate loans.

Many experts and good ones at that – say he should stop raising rates right now and allow his fixed rate mistake to wash through the market so that the whole (housing) economy is being affected.

Time will tell in the months ahead (1 to 3 more rises or not).

Clearly, I’m not in the minds of the Reserve Bank Board.

But while their fixed rate chickens fly home to the variable coop – best to plan for a peak rate of 6%.

As always – if you have questions or would like advice tailored to your own circumstances, Ask Alan, it’s what I’m here for..

Ask Alan – Mortgage Broking with a difference.