The Reserve Bank of Australia hasn’t increased interest rates in several years – and according to Shane Oliver, chief economist with AMP Capital, that isn’t likely to change any time soon.
“The labour market slack and falling house prices mean I find it hard to see the RBA raising interest rates,” he said.
“We do have a rate hike pencilled in some time in 2020. But there will certainly be no rate rise… to the end of the year.”
Indeed, there is a small risk that at some time in 2019, the RBA may have to cut interest rates again.
“This is not our base case,” Oliver said.
“But we can’t rule out the risk that rates might have to fall a bit further if weakness in the housing sector feeds through to the broader economy and threatens inflation on the downside.”
Weakening home prices will weigh on household wealth which will constrain consumer spending at a time when the household saving rate is at an 11-year low and wages growth remains very week. This in turn will likely keep inflation constrained at the low end of the RBA’s 2-3% target.
“Putting all this together, growth is likely to slip back to around 2.5-3%, which is less than the RBA is expecting at a time when inflation is likely to remain low,” Oliver added.
“While we believe rates are on hold for some time yet, well out to 2020, we can’t rule out another rate cut from the RBA if the falls in house prices intensify to the point that they further threaten the inflation outlook.
Read the full article by Shane Oliver
in the January 2019 edition of
Your Investment Property magazine
on sale at news agencies and
Coles supermarkets 6th Dec to 10th Jan
or download the magazine now.
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