It’s nearly two years since the Reserve Bank of Australia last changed interest rates – when it cut rates to a record low of 1.5% in August 2016.
My view is that the RBA won’t raise interest rates until mid of 2019 or even later.
At this point of time, economic growth is likely to average around 2.5-3% which is below RBA expectations for growth to move up to 3.25%.
Does it mean your mortgage rate won’t go up until mid or late 2019? Of course not! Last year’s bank rate rises were in response to regulatory pressure and recently they have been in response to higher short-term money market funding costs as the gap between bank bill rates and the expected RBA cash rate has blown out by around 0.35% relative to normal levels. This has further reminded households of the risk of higher mortgage interest rates.
How about overheat property price?
While low rates risk inflating asset price bubbles it’s worth noting that apart from Sydney and Melbourne home prices, the period of low rates has not really led to a generalized asset price bubble problem in Australia. And in any case as we have seen recently in relation to Sydney and Melbourne property prices – which are now falling (despite still ultra-low interest rates!)
Saver warning: continuing low interest rates in Australia will mean term deposit rates will stay low!
My view is that the RBA won’t raise interest rates until mid of 2019 or even later.
At this point of time, economic growth is likely to average around 2.5-3% which is below RBA expectations for growth to move up to 3.25%.
Does it mean your mortgage rate won’t go up until mid or late 2019? Of course not! Last year’s bank rate rises were in response to regulatory pressure and recently they have been in response to higher short-term money market funding costs as the gap between bank bill rates and the expected RBA cash rate has blown out by around 0.35% relative to normal levels. This has further reminded households of the risk of higher mortgage interest rates.
How about overheat property price?
While low rates risk inflating asset price bubbles it’s worth noting that apart from Sydney and Melbourne home prices, the period of low rates has not really led to a generalized asset price bubble problem in Australia. And in any case as we have seen recently in relation to Sydney and Melbourne property prices – which are now falling (despite still ultra-low interest rates!)
Saver warning: continuing low interest rates in Australia will mean term deposit rates will stay low!
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