Rates may not be steady for long

Speeches by Reserve Bank governor Ian Macfarlane and assistant governor Edey have reaffirmed the Bank’s stance on interest rates – that while it has opted for a pause amid financial market uncertainty, they need to rise to more normal levels sooner or later. The RBA’s position is that it still expects global economic recovery to continue, even if it’s slow and patchy, and help underpin Australia’s economic performance. There’s probably only an outside chance of a rate rise in September, but one before the end of the year is likely if financial markets settle down. The RBA appears not to be too worried at this stage by some signs the Australian economy may be softening. The Westpac index of leading indicators predicts a weakening in economic growth in coming months while an Australian Chamber of Commerce and Industry survey suggests activity has already slowed in small business. June quarter business investment figures out next week will tell us more on this important contributor to economic growth. Fixed rates continue to slide and have re-opened a window of opportunity for home loans borrowers considering locking in. It’s now possible to fix for three years at virtually the same rate as the standard variable. Westpac has cut its two-year rate by 0.20 to 6.49 per cent; the three-year rate is down to 6.59 per cent; and the five-year rate to 6.99 per cent.