9 Jun 2022
Australian Interest Rates: Stress test
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
Yes, the RBA (Reserve Bank of Australia) increased interest rates again and yes we have seen this all before.
Over the past 30 years there have been two periods of rapid rising interest rates linked to crashes in asset prices which are defined as a fall of 20% plus since recent peak.
They include the 1994 bond market crisis and the 2000 dot-com bubble (aka the tech wreck) which saw destruction in asset prices.
Interestingly the 2008 global financial crisis which destroyed asset price was then followed by a rapid rise in interest rates.
Click for chart.
The question then is, what will happen this time?
Yes it is likely that interest rates will rise again but there will be a limit because the government cannot afford to financially bankrupt borrows who account for an estimated 30% of Australian households.
The more likely path is a repeat of the interest rate tightening cycle between 2002 and 2007 which was more gradual and measured.
Irrespective, rising interest rates will likely create buying opportunities which is why now is the time to remain invested according to your appetite for volatility and when fear and panic take hold, react by buying more quality assets at discounted prices.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.