If not now, when?

Graeme Salt

Home owners pay attention to the news far more on the first Tuesday of the month than on any other day. On the first Tuesday, the Reserve Bank decides if home loan rates are up, down or remain the same. Right now, most economists are predicting interest rates to come down. But the first question is WHEN will interest rates come down? The next question is how low will rates go? The latest Bloomberg survey has 10 out of 21 economists forecasting a cash rate of 2.5 per cent in the final quarter of 2013 with Westpac’s Bill Evans tipping a cash rate of 2.25 per cent and the remainder anticipating now rate cut this year. Only two economists – Westpac's Bill Evans and AMP Capital's Shane Oliver – expect a rate cut in June. And JP Morgan chief economist Stephen Walters believes the he Reserve Bank will leave the cash rate on hold at 2.75 per cent until November. Much of this divergence in opinion is because the economy is divergent. While the mining sector is cooling, the property sector is clearly warming up after a series of interest rate cuts. In some sectors economic confidence seems to be up. Today, the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months in the future, was 3.9 per cent in March, comfortably above the long-term trend of 2.8 per cent. It is against this backdrop of a cooling, if unpredictable, market that many borrowers are choosing to fix their loans. With some lenders offering two and three year fixed loans of 4.99 per cent, many borrowers are choosing certainty.