Credit score worth improve begins – Information on-line
Following the decision of the State Reserve Bank (RBA), made last Tuesday, not to continue raising the cash interest rate, although there were hints that growth would occur, the Australian dollar weakened by 1.3 percent against the American currency.
Ozzy’s currency fell from 75.16 to 74.69 against the US, retreating from a four-month high of 75.55, which it reached last week.
The RBA kept the cash interest rate at a record low of 0.1 percent, but abandoned control over the yield curve, which consisted of keeping the yield on government bonds at the same level as the cash rate, until April 2024.
Simply put, the Central Bank has abandoned its policy of not changing the rate of return until April 2024.
There were market fluctuations last week, when it was suspected that the RBA could abandon its policy of keeping interest rates at a record low level. Namely, on Friday, October 28, treasury bonds maturing in three years were sold out, and the RBA was not there to buy them in order to control yields, and thus interest rates.
Experts believe that the RBA reacted like this due to inflation, as expectations of price growth last week rose to a seven-year high. Namely, if they had reacted by buying bonds, they would have risked inflation being too high.
According to RBA officials, the decision to lift the target yield rate reflects the improvement in the economy and progress towards the inflation target, even earlier than expected.
State Reserve Bank Governor Philip Lowe, however, said the market overreacted to one inflation footprint and that it did not reflect the reactionary function of the RBA.
However, even the expectation that the RBA will increase official rates earlier already has results in the real economy. Namely, banks have already set their fixed three-year mortgage rates, so that loans will become more expensive, which will continue in the coming period.
At the same time, economic experts believe that this will not only apply to housing loans, but also to business loans.
Four leading banks in Australia have already raised interest rates on fixed rate mortgages. Slightly cheaper are loans that have a variable interest rate or are on a shorter repayment period. This practically means that everyone who decides to buy a property will have to pay more for a loan with a fixed interest rate with a repayment period of two or more years.
Many experts believe that this may be the moment when citizens who already have housing loans could decide to refinance them and take a loan with a variable interest rate, which is cheaper.
True, the interest rate in that case may increase, but on the other hand, it gives greater flexibility in terms of unlimited additional loan repayments.
Another possibility is to divide the loan into two parts, one with a variable and the other with a fixed interest rate.
Judging by the decision of the State Reserve Bank, the cash interest rate will not be raised for now, and that affects variable mortgage loans.
Interest rates will not rise until inflation reaches the target level. Economists believe that the growth of the cash interest rate will not change until the end of 2022 or the beginning of 2023, and even then it should not increase by more than 0.5 percent.
As for inflation, the basic consumer price index for the September quarter, published last week, reached 2.1 percent, so for the first time since the beginning of 2016, it entered the desired inflation range of two to three percent, which the governor insists on. RBA Philip Lou.
Real estate continues to grow
Despite all the fluctuations in the market, house prices in Australia rose another 1.5 percent in October, according to CoreLogic. The growth was in line with the September growth, so that house prices are now 21.6% higher compared to the same period last year.
In the same period, rents rose 0.7 percent per month, compared to 0.6 percent in September.
Inflation jump, but also wages
The RBA has revised the inflation rate to 2.25 percent during 2021 and 2022, from a projected 1.75 percent, so it looks like price growth could take longer than originally projected.
The central bank also revised, albeit only slightly, the outlook for wage growth. It is now expected that the annual growth of salaries will reach three percent in 2023, compared to 2.5 percent as before.
In addition, economic growth of 5.5 percent is expected during 2022, compared to four percent, as previously planned.
Falling government bond yields
The RBA came out with the position that it will keep the weekly purchase of government bonds at four billion dollars until February 2022, under quantitative easing.
This was reflected in the bond market, with the rate of three-year government bonds falling from 1.07 to 0.95 percent, five-year bonds from 1.35 to 1.32 percent, and the yield on ten-year bonds falling from two to 1.89 percent. .