Interest rates: To fix or not to fix?

Interest rates are on the move as evidenced by another rise issued by the Reserve Bank of Australia (RBA) last week. The RBA and central banks around the world are trying to contain inflation and seem content using monetary policy as the primary method to tackle the problem. 

The outlook is for this to continue throughout the remainder of 2022 calendar year. As an example, the BBSW six-month swap rate is today sitting at 2.83 per cent and this gives a current indication of where the market sees variable rates going between now and Christmas.

There is an immense amount of volatility in markets across the world. This is mostly caused by continuing supply chain disruption, China’s commitment to a zero Covid policy and the resulting lockdowns of cities as well as the politics around the war in Ukraine, to name a few. Growth forecasts globally are starting to slow, and one would assume rising interest rates will add to the slowing forecast. 

Currently we are regularly asked if there is value in fixing?  Fixed rates have moved sharply in the last 10 months and value is now questionable. As an example, advertised three-year fixed rates range from mid-5 per cent to mid-6 per cent a difference of 1.5 per cent to 2 per cent on the variable rates available now. The value is questionable and perhaps just sit tight and ride the swell.

With markets contemplating sharp rises to try and get inflation under control, the possibility of rate cuts coming into play in late-2023 are gaining more discussion.

We have seen longer term interest rates increase sharply on home loans, but equipment finance has seen the largest increase in the shortest time. Five-year money is north of 7 per cent and many clients have been surprised at how quickly this has risen.

To put this in context, the RBA cash rate is still only sitting at 1.85 per cent which historically is extremely low and history would say unsustainable.

It’s a tricky time and if you are concerned about the rising costs of interest rates on your business or personal lending, we are available to discuss your individual circumstances.

If you haven’t looked at your interest rates for the past two years you might be paying too much. If you have not had your interest rates reviewed for more than five years you will most likely be paying overs.

Interest rates will have a direct impact on every client, but there are other ways of restructuring to assist with improving cashflow. 

If you have any questions, please get in touch with WMS, Gold Coast’s leading accounting and professional services firm.

Jason Stammer

With over 28 years experience in banking and finance, Jason heads up our Finance Broking division. He specialises in sourcing finance for business owners by tendering their banking requirements to a panel of financiers.

Jason has organised in excess of $1 billion in loans for our clients and is regularly recognised as a Top Performing broker within aggregator Astute.

Outside of work, he enjoys getting outdoors and his passions include playing tennis, golf, fishing and camping.