Why interest rates could rise in 2022

Why Interest Rates Could Rise in 2022

Mark Stevenson, Managing Director at Bell Partners Finance (now Evolve Lending & Finance) wrote for The Western Weekender in November 2021, flagging an emerging shift in the rate outlook and urging borrowers to start preparing well before any official move.

RBA Governor Philip Lowe had recently moved his forward guidance earlier, suggesting conditions to justify a rate rise could be “appropriate in 2023,” having previously held firmly to a 2024 timeline. But many economists and market analysts were going further, believing the RBA would be forced to act even sooner given the pace of economic recovery following two years of pandemic disruption and the accompanying uptick in wages growth. New Zealand’s central bank, dealing with its own sharp fall in unemployment, was already considering a second rate rise, and that was sharpening expectations closer to home.

Mark noted the practical constraint the RBA faced: with the cash rate at a record low of 0.10 per cent and a large share of mortgage holders carrying significant debt at rates they had never experienced rising before, even modest increases would have a real impact on both borrowing capacity and monthly repayments. The kind of rates that had been considered normal before the pandemic era, around 5 per cent, were now a distant memory for many borrowers.

His guidance was clear and practical. Know what your repayments would look like if rates increased by 0.5, 1 or 2 per cent. Build a savings buffer if you have not already done so. Review your monthly budget and identify areas where spending could be reduced. And consider whether locking in a fixed rate made sense to provide certainty through what could be a period of change.

Getting rate-rise ready before the move happens is always more effective than scrambling after the fact. Contact Evolve Lending & Finance to review your position and put a plan in place.