Flood Crisis May Cause Interest Rates to Rise

rise in interest rates

As 2010 has just come to a close and the forecasts for the upcoming year are being released and scrutinised, there is a lot of speculation swirling around interest rates. The flood crisis we are experiencing at the moment in both

Queensland and Victoria are making an increase in the interest rates by the Reserve Bank of Australia (RBA) nearly inevitable.

 Many argue that with our current strong dollar, the prices of imported goods should be keeping the inflation balanced, but in actuality the price of the goods are declining at a slow rate. This slow degradation is not enough to prevent the internal pressures that cause inflation.

Prediction of Interest Rates to Rise

As December 2010 came to a close, the RBA reported the inflation of prices over 2010 had come to 3.2%. This figure exceeded their initial forecast which targeted between 2 to 3%. In December, Australia saw a decrease in the price for books, newspapers, magazines, computing, video and audio equipment, and sporting products. Alternatively, prices increased for holiday travel and accommodation, fruits, vegetables, and fuel.

The Queensland floods will now tip those already high prices in food and fuel and cause them to travel upward. Many of the fruit and vegetable crops rely on Queensland and now with the lost crops the availability for many produce, such as mangoes and bananas, will become scarce and very expensive.

In addition to the food prices, there is a requirement to spend more funds on repairing and reconstruction from the damage of the floods.  With this factor and the fact Australia is nearing full employment, wages will be required to increase and thus inflation.

The RBA and the National Bank of Australia have predicted the market will increase by 75 basis points, which converts to 0.75%, by the March quarter.  A further increase of 1 percentage point is expected by the end of the year which forecasts in a years’ time inflation will be at 5.75%.

Debt consolidation and refinancing are two options that will allow you to secure your home loan and debts to the low interest rate before the increase.  Through debt consolidation, all of your personal loans and credit cards are compiled into one loan which will assist you in paying those debts down quicker.  Refinancing is a way to reconfigure your home loan into a new home loan, which can allow you to switch to a fixed interest rate loan and provide additional cash for renovation, reconstruction or other personal reasons by unlocking the equity in your home.

To find out how to take advantage of the lower interest rates before inflation hits, contact Australian Lending Centre today on 1300 138 188.  Alternatively, complete the enquiry form on the right and a consultant will contact you shortly.

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