Two Rate Cuts “Fully Priced In”

According to Macquarie Bank chief economist two rate cuts are fully priced into the current market. (The Australian p 17 Apr 30^th)

• What does this mean?
• Why is it happening?
• What should you do?

Fixed interest rates typically indicate where Variable interest rates are headed – they are the “canary in the coal mine”.

Banks “hope” to lock in consumers early and typically charge them a premium for supposed “certainty.

At the moment variable home loan rates are typically just around 4% pa, but there are currently fixed rate deals for new borrowings as low as 3.5% pa.

In other words – That “fully prices in” two cuts of 0.25% to the official cash rate.

It is happening primarily due to overseas factors – the slowing economic effects of the USA China trade war and the paralysis in Europe over Brexit. Here in Australia funding costs to banks are sharply lower because of this and inflation has fallen to only 1.3% pa – the economy is slowing.

The Reserve Bank is increasingly mindful of needing to stimulate confidence in the economy. Whether it acts in an election period is the only question.

What you should do with your existing loan is sit still. The interest rate market will move over the remainder of the year and I will monitor that with you.

If you are taking out a new loan, then I will discuss what is best for your circumstances personally.

Talk to me about your own situation, I’m here to help – call or email me anytime.

Ask Alan – Your online mortgage broker.