Pundits predict RBA rate rise

Pundits predict RBA rate rise

03 October 2014 by Michael Crawford 1 comments

Australian property buyers have until next June to find a competitive home loan ahead of a predicted rise in the cash rate by June 2015, which may continue for a further three years.

A survey of 28 experts, due to be released tomorrow, found 46 per cent believed an increased in interest rates would be handed down by the Reserve Bank in quarter three of 2015, a 21 per cent chance rates would rise in the first quarter of 2015, and an 18 per cent chance rates would rise in the second quarter of 2015.

The survey, which included responses from the big four Australian banks and is released by comparison website finder.com.au, found the Reserve Bank is likely to leave interest rates as they are ahead of the Reserve Bank’s board meeting next week.

BIS Shrapnel associate director of economics said the current overheated market prevents a rate cut, although the RBA would like to do so in order to engineer a decline in the Aussie dollar.

Domain group senior economist Andrew Wilson said he believes interest rates will stay where they have been since August last year, despite recent changes that will, perhaps, begin to alter the outlook, such as the consideration of macro-policy.

“We’ve seen the Australian dollar fall over the past month, now heading in the direction the Reserve Bank has wanted, and has wanted for the past two years,” Mr Wilson said.

Raine & Horne executive chairman Angus Raine said the Reserve Bank is waiting for the employment market to stabilise before it increases rates.

“Inflation is still within the acceptable two to three per cent range and unemployment is holding steady at less than five per cent,” Mr Raine said.

“Once the RBA sees evidence the unemployment rate has plateaued it’s fair to expect the RBA will begin to tighten monetary policy and the next cash rate will be impacted by the global geopolitical climate.

“If tensions worsen in the Middle East and the Ukraine, it might prompt the RBA to hold off, while it would continue to monitor the US and EU recovery, or lack thereof.”

Finder ‘money expert’ Michelle Hutchinson said inflation being subdued, the low Aussie dollar and damage to property markets outside Sydney and Melbourne should raise the cash rate soon, adding the good times for property buyers are not expected to last.

Ms Hutchinson suggested those with a mortgage should be paying off as much as possible to reduce the impact of higher rates.

“The cash rate is expected to gradually increase over the next two to three years and hit a ‘new normal’ level of four per cent, according to the survey,” Ms Hutchinson said.

“Only 11 per cent of the 28 experts surveyed believe the cash rate will reach the historical average of about five per cent, while a majority (64 per cent) believe a ‘new normal’ of below five per cent will be reached.”


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