T Themoodsurroundinginterestratesischanging fast. Twelve months ago the expectation was that interest rates would fall from their already record lows. The Reserve Bank’s cash rate of 1.5 per cent was expected to be cut at least once, but more likely twice more. Butaseriesofchangeslocallyandoverseashave changed the outlook. The broad expectation is that the next move in rates will be up, not down. The drivers of this thinking include rising interest rates overseas (the US and Canada have already moved and even the UK has made noises) and the local economy slowly showing signs of improvement (slightly rising inflation and falling unemployment are the key numbers). But the Reserve Bank will be stuck with steady interest rates for some time. It is aware that home building (especially in Sydney, Melbourne and Brisbane) has been the biggest force keeping employment and the economy going for the past two years. Therefore it will be cautious about raising rates for households that incurred significant debt to acquire their homes – threatening the economy into the future. So while many predict doom and gloom for property markets (and based on numbers around debt to income and the incredible rise in home prices, you can understand those predictions) there is something else at play. The first is that those interest rates have remained lower for longer, and the prudent person has taken advantage by reducing their debts to more cautious levels. The next part of the equation is population growth. Australia’s population continues to rise rapidly, with most of those people arriving in Sydney especially. While many claim the nation cannot cope with a rising population – that it costs too much and too many jobs are taken – in fact, Australia has coped remarkably well with the hundreds of thousands of new arrivals in the past few years. The evidence for this is that the NSW unemployment rate is just 4.8 per cent, compared with a national rate of 5.6 per cent. Yet those immigrants require housing, which has kept the demand side of the equation bubbling along. These points are so often missed by many forecasters who look at the debt households are incurring to purchase their homes. But rising interest rates are one of the risks to housing, and the economy. Even here, the rates will not rise (global catastrophe the exception) unless the economy improves markedly. That means higher prices, better profits for companies and higher wages. In other words, heavily indebted households and businesses might bemoan rising rates… but for that to happen other positives must first occur. For the past three years, the key missing ingredient in the Australian economy has been confidence. Remember the former Reserve Bank Governor Glenn Stevens asking when the “animal spirits” of Australian business leaders will come to the fore with record low rates? Well there are finally signs that even this is picking up. Employment across the nation has improved for the past nine months; business confidence measures are pointing up. It is not yet exuberance – far from it – but with confidence improving, the first tiny steps to a better economy are already happening. Even car sales in the last financial year have set new records, always a sign that people are coming out of their shell. But with rates so low and financing deals as good as they have ever been… why not lock in those rates while you can? As the Prime Minister directly warned (the Reserve Bank also, in a more subdued manner) these low rates will not last forever. They are deliberately low to stimulate growth in the economy… but once that is done the central bank will be keen for them to be higher. In other words, take it while you can… but keep an eye out for the future. Even car sales in the last financial year have set new records, always a sign that people are coming out of their shell HIGH INTEREST IN RATES Loose money has kept the global economy afloat in tough times, but how long will the stimulus last? Mercedes-Benz Parramatta Brand Ambassador Ross Greenwood considers Australia’s position WORDS Ross Greenwood ROI 25