THE EFFECTS OF HAVING LOW INTEREST RATES
- Written by Melanie Toye, May 10, 2013
I assure you I am not complaining about the recent, low cash rate of 2.75 per cent. As a mortgage owner myself, I greatly appreciate the lowered interest rates. But, and I do say but, what does this mean for the Australian economy?
Outcomes from the RBA Board meeting concluded, with the steady growth for the United States, China and Japan and with Australia's growth a bit below trend from mid- 2012 to 2013 the decision was made to lower the basis points.
What does this mean for the future Australian economy? Governor Glenn Stevens said in his statement that future developments are expected to strengthen the economy in dwelling investment, business investment and exports in raw materials. "Over recent meetings, the Board has noted that interest rates have already been reduced substantially, with borrowing rates approaching previous lows, and that the effects of this on the economy are continuing to emerge. Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased" Stevens said.
Interest rates gives mortgage owner's some stress-relief on their mortgage. With any low however, there is always a rise in time to come. So it's up to you to decide to continue to pay the same repayment on your mortgage and pay off your mortgage quicker or to use this extra money that is now available for other potential investment opportunities. In turn, down the track, the investment could help repay your mortgage from the extra income earned from it.
Australian Securities and Investments Commission chairman, Greg Medcraft, was reported in expressing fears the Reserve Bank of Australia’s record low 2.75 per cent cash rate could lead many investors into attractive-sounding assets that are too sophisticated for them. Note that for any investment decision, to do your research and get the right advice.
Other impacts on interest rates include exports to overseas will be great for our local business. And interest rate cuts lower the financial strain on mortgages which in turn is hoped more people will spend that extra money and boost the Australian economy.
As history tells us, interest rates will inevitably rise, so whatever you choose to do, make sure it is in your best interest for your financial future.
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