BT Financial Group Chief Economist Chris Caton predicts official interest rates will end the year at 3.0%, an increase of 0.5% on today’s rate. This would be first rate rise for more than three years. Official interest rates have now been below 5% since December 2008 and less than 4% for most of the past two years, as you can see from the table below.
A rise in official interest rates is generally bad news for borrowers. A 0.5% rise in official interest rates usually translates to a 0.5% increase in variable mortgage rates, which would bring them to an average of about 5.6%1. If Mr Caton’s prediction is correct, fixed rates are also likely to start to increase by the middle of the year. Again bad news for borrowers but good news for long-suffering cash and term deposit investors.
The average interest rate for a $10,000 investment in a 12-month term deposit is currently 3.4%2, well down on the 6.15% average being offered three years ago.
Date Interest rate March 2012 4.25% June 2012 3.5% September 2012 3.5% December 2012 3.0% March 2013 3.0% June 2013 2.75% September 2013 2.5% December 2013 2.5%
Source: Reserve Bank of Australia (RBA) -