Let’s start with Market competitive Home Loan interest rates.
A competitive (principal and interest repayment) owner-occupied home loan variable interest rate today would be 4.19%; a 2-year fixed would be 5.04%; 3-year fixed would be 5.19%; 5-year fixed would be 5.59%.
A competitive (principal and interest repayment) investment loan variable interest rate today would be 4.39%; a 2-year fixed would be 5.34%; 3-year fixed would be 5.49%; 5-year fixed would be 5.89%.
Turnaround Tuesday 4 October 2022
The financial markets are expecting a 0.75% Official Cash Rate increase to take the cash rate to 3.00% on an annual inflation rate of 6.10%. Thereafter, the expectations are 4.50% OCR by middle of next year.
Notice on the below graph that the market expectations are similar to 16 June 2022 expectations.
The OCR should be higher than inflation, but the consumer and the economy cannot afford it other than the … privileged ones.
Will the RBA appease the financial markets or do a middle job, somewhere between the financial markets’ expectations and a token 0.25% rate increase?
Or will it go all the way and do what the Bank of England did on 29 September 2022? Following up from our 4 June 2022 research note, Australian Government Bond yields went sideways.
First Central Bank to blink (aside the Bank of Japan and the Central Bank of Turkey)
The Bank of England (BOE) blinked on 29 September 2022 (with a 2.25% Official Bank Rate on 8.60% inflation) in a desperate move to once again bailout the gamblers in the financial markets and save the world by pivoting back to QE (only temporarily of course) by buying unlimited bonds on market to halt off a flash crush in the pound and bonds yields.
Would the FED be next?
The Federal Reserve (FED) will also have to blink to stave off the collapsing USA stock markets ahead of the November 2022 mid-term elections. No matter what the reasons are, even inflation for the month of October unexpectedly dropping, and this is not financial advice, but somewhere in October 2022, the charts indicate that the USA stock markets will put in a super low and then explode to the upside – and you guessed it, just in time for the mid-term elections.
And this could only be made possible if the bond yields stabilise and head lower with the FED and other central banks blinking.