WHERE DO YOU THINK THE RBA CASH RATE WILL BE IN 12 MONTHS' TIME?
I predict that the RBA cash rate will be 5.5 per cent this time next year, which is close to the top [that it can be expected to reach]. Currently, it is 4.5 per cent. While there are risks that a double dip in the global economy may occur between now and then, it is unlikely. Some people are concerned that the cash rate will end up back where it was in 2008 as a result of the RBA trying to keep a lid on rising house prices and inflation. However, I think that this also unlikely, as inflation is currently within the RBA target level.
Resi Mortgage Corporation
We are expecting a welcome period of stability for official interest rates over the next 12 months after a series of rate rises. This means that despite any further global or domestic upheaval on the financial front, we can still expect the cash rate to get up to around 5 to 5.5 per cent, and level off around that figure for at least the first six months of next year. Variable lending rates will continue to rise in line with that official cash rate in addition to the occasional out-of-cycle increase by some of the majors over the next year.
Given the recent moderation in domestic growth and disturbed conditions in global financial markets, it is likely that the RBA will defer further increases in the cash rate until later in the year. Core inflation should test the upper bounds of the RBA target range during 2011, so we expect rate rises to begin again in late 2010 (say 25 points in both November and December) and to peak at around 5.5 per cent in mid-2011.
We expect uncomfortably high inflation reads, solid growth and tightening labour market conditions to prompt further interest rate increases, with three 25 basis point moves taking the cash rate to 5 per cent by September 2011. This will lift variable mortgage rates from their current 7.4 per cent to 8.15 per cent - a level well above historical averages. Westpac also expects the RBA to increase interest rates by a further 0.75 per cent by the end of 2011 in response to uncomfortably high inflation reads.
BIS Shrapnel is forecasting a cash rate rise of 0.25 per cent towards the end of 2010, and then another rise in the middle of 2011. Interest rates will remain reasonable by historical standards, and will not substantially dampen demand for housing. Over the next six months investor demand is expected to rise further, which will support market turnover. With prices currently flattening, we expect demand from first home buyers will gradually recover in 2011.