Chamber Talk with QT Better Business columnist Brett Kitching.
Chamber Talk with QT Better Business columnist Brett Kitching.

A sign of improving times – rate rises

A RECENT review of medium term fixed interest rates showed upward pressure which is to some a good sign, to others something to be wary of.

Interest rates will increase generally when an economy is surging, in an attempt by governments to stabilise activity.

The Reserve Bank of Australia left rates on hold again this month and somewhat indicated that the next movement would be upwards, though possibly not for some time yet. A review of medium term fixed rates last week showed an increase in rates indicating a consensus of belief that over the next few years, increases in the government cash rates are expected.

This further indicates a belief by most that there will be an upward movement in the Australian economy over the next few years.

The projected increase is good news from the point of view of an increase in economic activity - something that would assist in increasing asset values as well as increasing business activity.

The bad news of an increase in rates is to mortgage holders who will be faced with thousands of dollars a year in repayments higher than they are currently required to make.

As long as this overall scenario is well known and well planned for by recent mortgage holders, the overall news of impending higher interest rates is on balance positive, as it means there is stronger economic activity and consequent rising asset values.

It has been five years since the impact of the GFC was fully felt and for much of that five years, asset values have been stagnant.

We have seen an increase in stocks in Australia of around 30% from their post GFC lows to current levels.

Expect interest rates to increase over the next few years, and be aware that the key is to be prepared for this.