Interest rates are at an all-time low and are likely to stay low for some time. But, at some point, they will go up – how big a rate rise can we expect?
Most Aussies are scarred by stories of the 18-or-so per cent interest rates experienced in the 1990s. Even if you have not experienced the rates yourself, chances are you know someone who has done so.
When rates (eventually) rise, how far up do you think they can go?
Not much is the answer, this graph (below) from PIMCO show that over the past 300 years, interest rates have primarily been in the 3-6 per cent range; the period of double digit interest rates was the exception.
If you’re a baby-boomer, you grew up with annual interest rates in the low teens. But, for many first home owners today, interest rates above five percent are difficult to imagine. But what is the normal state of play, and what can we expect interest rates to do in the foreseeable future?
It’s hard to see interest rates getting particularly high and certainly impossible to see rates going up rapidly. Should inflationary pressures develop in our economy chances are that, with all our indebtedness, the RBA doesn’t need to raise rates that much before we all start to feel the pain in our back pocket.
No-one really knows for sure what interest rates will do (even the so-called experts). But, chances are that borrowers can sleep soundly for some time to come.