Will the share market have an affect on tomorrow’s interest rate decision?

house keyThe Reserve Bank of Australia is set to meet tomorrow to make their monthly interest rate decision, and many are wondering whether global share market instability will have an impact on interest rates.

The RBA are usually quite prudent in their decisions and wait to see the outcomes of an event before making an interest rate move, so many believe that interest rates will remain on hold tomorrow, however we could see a drop in the coming months.

According to Stephen Halmarick, head of economic and market research at Colonial First State, “the most likely outcome from the RBA board meeting in September is that they leave the cash rate unchanged at 2%.”

“The high levels of volatility in global financial markets and the associated weakness in the Chinese economy implies some downside risk to Australian interest rates over the remainder of this year.

“While the base case is that official rates stay on hold at 2%, the risk is that the RBA is forced into lowering interest rates again to help protect the economy from further weakness in the global economy and lower commodity prices.”

However while interest rates look to remain on hold and perhaps go down in the coming months, homebuyers and investors should still practice caution and not bite off more than they can chew.

If you’re planning on taking out a new loan then ensure that you can afford to pay it off at a higher rate as there is a chance that they will start to go up again, and soon. You should always create a buffer for yourself and make sure that you can service higher rates.

It’s also worth making the most of interest rates while you can by getting ahead on repayments and paying off as much of your loan as possible, because it will be much harder to do if interest rates start rising again.

Do you have any interest rate predictions for tomorrow?