The world’s money mandarins have been warning for months now about interest rates rising sooner, faster, and to higher levels than previously expected, creating panic on global stock markets.
But unless Australians have plunged everything into ultra-high risk investments, like technology companies that don’t earn any money, they need not panic as they’ll survive the long-overdue shift in the financial world just fine, according to new analysis.
An ABC analysis said the turnaround already started a year ago – it was just that central banks refused to acknowledge it, saying interest rates would not be lifted for years; while share traders, emboldened by the assurances, kept on blindly buying, pushing stocks further into orbit.
But while central banks remain a powerful force in the marketplace, they already lost control a year ago.
“A year ago, the 10-year government bond rate – often called the ‘risk-free rate’ because it’s an IOU backed by the government – was sitting at just 0.6%, not too far above the RBA cash rate of 0.1%,” ABC said. “For the past 12 months, bond market traders have ignored the Reserve Bank’s insistence it would keep rates on hold until 2024. Instead, concerned about rising inflation, it pushed market rates higher, which explains why all those incredibly cheap fixed-rate mortgages suddenly disappeared. Last week, that 10-year government bond punched through 2%.”
And it was the same with other economies. In Germany, until last week, government bond rates for years have been below zero.
ABC said this was ludicrous and dangerous: “Ultra-low, zero, and negative interest rates have distorted global finance, pushed investors into ridiculously risky investments and artificially inflated stock prices and real estate. They’ve also punished savers, anyone who wanted to park money with minimal risk.”
What forced the change was not the central banks, but the spectre of inflation that has been dormant since the 1990s, the analysis said.
Philip Lowe, governor of the Reserve Bank of Australia, has said that there needs to be growth in wages first before there’s any substantial rise in interest rates. So, by their time mortgage rate is hiked, maybe later this year, Aussies should be able to cover it with a bigger pay packet.
“That’s going to be crucial for the legion of first home buyers, many of whom took on loans six times their incomes, who took the plunge last year in a borrowing spree that was encouraged by our monetary mandarins,” ABC said.