• Miranda Banfield-Powell

Investing in a High Interest Rate Space



Its no secret that Australia has seen a number of interest rate rises in the first half of this year. In a statement from the reserve Bank of Australia released today, Phillip Lowe confirms


"Inflation in Australia is the highest it has been since the early 1990s. In headline terms, inflation was 6.1 per cent over the year to the June quarter; in underlying terms it was 4.9 per cent. Global factors explain much of the increase in inflation, but domestic factors are also playing a role. There are widespread upward pressures on prices from strong demand, a tight labour market and capacity constraints in some sectors of the economy. The floods this year are also affecting some prices."

- Philip Lowe, Governor (2nd August 2022).


But what does this mean for investors? Although increases like this may be a shock to first time home buyers and investors, economists still agree that even the highest spikes of 2022 remain historically low, compared to the 7-10% increases of the late 90s to early 2000s. Seasoned investors know that it is unrealistic in the current market to expect fast returns, but rather to invest now, ride out the down time while borrowing is still relatively cheap and reap the rewards in the long term.


“While the increase in interest rates appears to be a welcome relief, in real terms it’s actually going backwards in a significant way."

- Peter Crump, BDO Senior Consultant (1st August 2022).


We often hear people ask if its possible to pause their investment and step away from the market at a low and jump back in at a high. This isn't a recommended strategy as it is too risky to try to anticipate the market; there is a real danger of being outpaced by inflation and other market fluctuations. Best to trust your initial investment and nurture what you have already put your valuable time and energy into. Our advice to investors remains that its important not to leap-frog to new investments with the allure of low rates or different regional offers; the key reason for investing should always be your personal and financial confidence and security, not fear of market drops or increases.


Sources:


Lowe, Phillip. Reserve Bank of Australia, Media Release. 2nd Aug. 2022

www.rba.gov.au/media-releases/2022/mr-22-21.html


BDO sponsored article for IN-Daily. "Investing in an environment of rising interest rates". Article. 1st Aug. 2022.

https://indaily.com.au/news/sponsored-content/2022/08/01/investing-in-an-environment-of-rising-interest-rates/


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