Australian Interest Rates Forecast
By John Edwards
The RBA has not increased interest rates and does not look as if it has any intention in doing so in the short to medium term. In fact, our reading of its position is that while it is in “wait and see” mode, there is potentially a slight bias that it is inclined to move rates down. Its “wait and see” attitude is a reasonable position to take at this point in time as there is no clear direction in the global economy and the Australian two-part economy is contradictory. The RBA tells us that current policy settings are delivering reasonable constraint but uncertainty in the consumer space could continue to dampen demand and weaken inflation pressures.
In the past few days, there has been a renewed perception of some order of global stability taking place as our stock markets rebound. Perhaps it is true that it is more greed than a valid assessment of the global economic situation. Nonetheless, the rebound in the markets will be somewhat reassuring to the community at large. However, in the latest release of RBA minutes there is no sign that stability on its own is sufficient to cause the RBA to return to a more positive rate setting bias. It seems that for them to move in this direction the following are needed:
a) Pickup in domestic retail activity indicators;
b) Resumption of the downtrend in the unemployment rate;
c) An increase credit growth;
d) Rising commodity prices; and
e) Rising exports.
If the RBA is unable to make up its mind on what is going to happen and what is needed, then it is no wonder that the community at large is equally confused. This confusion has manifested itself in poor retail sales and corrections in housing values, particularly in cities where there is stock surplus. It is also just starting to feed through to a loss of jobs with the unemployment rate marginally increasing. For the RBA and government, this is something they will need to watch carefully.
The RBA looks as if it is more likely to reduce rates rather than increase them. In our view, we have probably reached the top of this interest rate cycle and from here rates will be decreased. We expect an adjustment to take place before the end of the year in the order of 0.5 per cent and the rate to remain at the reduced level for the following 12 months.
Until next month
Best regards,
John E Edwards,
Founder and CEO, Residex
About John Edwards…
John Edwards is CEO of FindMeaHome.com.au and Residex, and is recognised as Australia’s leading property researcher.
Australian Interest Rates Forecast
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