When will interest rates rise – What should you expect?Tom Uhlich
As lending conditions become tighter by the day and the housing slump continues to rear its ugly head, market experts and economists alike have published their estimates for the next cash rate hike, drawing upon specialised information from the Reserve Bank of Australia.
Following the recent survey distributed by the Australian Financial Review, leading economists made a bold prediction that the Reserve Bank of Australia would increase the official cash rate to 1.75% by June of 2020.
As feared by many, it is expected that property prices will not only continue to rise over the next twelve months, but that lending conditions will become even tighter. If these estimations prove to be correct, the central bank is likely to maintain current cash rates of 1.5%, a figure that has been stable for the past two years.
Industry experts have been weighing in on the matter, and UTS Business School Professor Warren Hogan states that the Reserve Bank of Australia is fully aware of the risks posed by the current market decline. Speaking in further detail, Professor Hogan stated;
“There is a more evenly balanced outlook for interest rates than there has been for the past 18 months as the declines in house prices seen over the last six months increases the probability that the next move in interest rates in Australia is down.”
Katrina Ell of Moody’s Analytics also shared her ideas, explaining that the Australian cash rate had previously been estimated to increase by the second half of 2018. However, due to the significant decline in dwelling values that occurred, Katrina explained that this estimate had been completely malformed by the end of the year.
Top 3 Year Fixed Rates
- Auswide 3.76%
- Suncorp 3.79%
- Westpac 3.79%
Further drawing upon her industry knowledge, Ell believes that the likelihood of rate cuts occurring in 2019 is slim to none, though many economists are quick to disagree.
Stephen Anthony of Industry Super is one to openly doubt Ell’s predictions and instead believes that the central bank is likely to lower rates even further given the speed in which the economy is slowing. When speaking to the Australian Financial Review, Stephen said;
“But should that be the official forecast? It also knows that if it can ‘manage’ sentiment, it may also contribute to a softening of activity rather than a bust, especially via property prices and dwelling investment.”
In agreeance with Stephen, AMP Capital Chief Economist, Shane Oliver, recently published a report with Smart Property Investment. Within this report, Oliver spoke of his predictions of the official cash rate lowering to a mere 1%, given the significant lull in leading housing markets of capital cities including Melbourne and Sydney.
With just a month to wait, the central bank is set to release an official statement of its monetary policy decision when the board congregates in early February.
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