Interest Rates

Just got back from Vietnam and Cambodia.
Things keep on moving while you're away.

The current consensus is that interest rates will keep on rising because growth will return to trend very soon (at least according to RBA Gov Stephens). I think this is a big call and it's possible that the RBA will have to do a big u turn in 2010 like they did in 2008 if they continue rises over 2009.

The problem is now that the RBA believes its own hype that it got the economic cycle completely right. No doubt decisions to reverse monetary policy rapidly and to stimulate fiscally played a big role in Australia avoiding a technical recession but there's abeen a fair bit of help from China as well.

Luck has played a big role too.

I think the RBA is taking a big risk if it keeps going with rises over the next 12 months.

The RBA wants to avoid a renewed bubble in housing but there are other ways to do this. Not making what are effectively direct payments to venders through home loan grants would have been one way. Or at least limiting grants completely to new home builds.

On the personal front some good advice from Chris Vitale of Mortgage Choice

"If you were going to take a fixed rate now, you would have to believe that interest rates were going to increase by significantly more than two per cent in the next 18 months," he said.
"That's at least another eight interest rate increases, before you even break even."