Would you go fixed interest rate or variable at the moment? If fixed for how long?

Interest rates and the economy – property prices

•  Interest rates have been left on hold since March. The immediate inflation outlook is the leading indicator for monetary policy or the regulation of interest rates.
• The cash rate is currently 7.25%.
• Economic growth (which drives jobs and demand) is expected to fall from 3.25% to 2.75%.
• Unemployment is tipped to rise from 4.25% to 4.5%. (Reflecting the slowdown in growth).
• Whilst the RBA has lifted its inflation forecasts by December 2008 from 3.5% to 4.5%, the medium term outlook is then a fall to 3.5% – which supports claims that the cash rate should fall over 2009. This should see home interest rates fall and some life come back into the property market.
• NAB thinks the cash rate will fall from 7.25% to 6% over 2009.
• Economic forecaster, Peter Switzer states that the above forecast should come to pass so as long as the price of oil does not increase too dramatically. An increase in the price of oil may put further upward pressure on inflation (Goldman Sachs forecast that oil may rise to $US200 a barrel).
• Peter Switzer states that if oil 'goes sky high' that we can count on a recession and then interest rates would fall big time to avoid a long drawn out one. A recession is measured by two negative quarters of GDP growth..
• The RBA supports Westpac's statement that the worst is over with regards to the 'Global Credit Crunch' and rates should ease ion 2009.

Can you afford for rates to up? If not maybe consider a 50/50.

Cheers