European crisis could be an interest rate 'game changer'

The brewing financial crisis in Europe could still dictate Australia’s official interest rate policy, it has been argued.

Mitchell Watson, a financial analyst at Canstar Cannex, suggested that another global credit crunch could lead to interest rate cuts.

Speaking to the AAP, he claimed that while recent interest rate rises have narrowed the gap between fixed and variable home loan rates, it may be a risk to fix in anticipation of further increases.

"Borrowers could see this as an opportunity to reduce the risk of fixing, but they need to be aware that fixing a home loan is a long-term decision and very much a gamble," he said.

"So it really does depend on your own individual circumstances."

Mr Watson noted that a month prior to the onset of the global financial crisis in October 2008, people rushed to fix their mortgages because they expected rates to soar.

However, as rates were cut in the ensuing period, such people ended up worse off than those on variable loans, he said.

The comments may encourage more Australians to compare interest rates in search of the best options. Last week, Nomura Australia chief economist Stephen Roberts claimed that the Reserve Bank may keep interest rates steady until November if inflation proves to be "just about tolerable" in the upcoming consumer price index for the June quarter.

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