What’s happening with interest rates?
Over the past few weeks, there has been a lot of chatter about interest rates. Banks have raised rates on investor and interest-only loans, despite the Reserve Bank of Australia (RBA) keeping the official interest rate at a record low of 1.5%.
Does that mean the RBA will raise rates tomorrow when they have their monthly board meeting?
When will the RBA raise rates?
It is unlikely the RBA will raise rates at its April meeting. The RBA will be glad the banks have recently raised rates on some loans. In addition, the bank regulator, APRA, has asked the banks to pull back on higher risk interest-only loans, which will help to take some heat out of the Sydney and Melbourne housing booms.
The problem for the RBA is that it has encouraged a huge increase in household debt, thanks to its low interest rate policy. This has fuelled the housing boom and made the economy much more sensitive to higher interest rates.
So the RBA will be very wary of increasing rates before it’s absolutely necessary.
Specifically, they’ll want to see consumer price inflation picking up strongly before they start to signal higher rates.
Rates on hold for now?
The next consumer price data release is set for the end of April. If that is higher than expected, the RBA might change its tune in early May.
The market is a good barometer for future events and, judging by the performance of the financial sector, there isn’t anything on the horizon to worry investors too much.
Check out the chart of the ASX 200 Financials index:
It recently broke out to a near two-year high. This is bullish, and suggests higher interest rates aren’t going to derail the economy or housing market anytime soon.
The market is saying, ‘Don’t worry, be happy’.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
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Editor, Money Morning