Low interest rates the "new normal"

By YIP | 16 Jun 2016
Interest rates are likely to remain at historical lows for the next decade, a large mortgage broker network has said.

1300HomeLoan managing director, John Kolenda, said the Reserve Bank of Australia is unlikely to return its cash rate to levels previously considered “normal”.

He said the official rate now at a record low of 1.75% will be the “new normal” with consumers more sensitive now to the impact of higher interest rates.

“We are unlikely to see official interest rates move to pre global financial crisis (GFC) levels and the standard norm of the future will be lower than historical levels for the next decade,” Kolenda said.

“The monetary policy game has changed and the RBA has found cutting its cash rate is not necessarily an instant remedy for economic stimulus.”

Conversely, according to Kolenda, a cash rate rise would lead to “disastrous” impacts on consumer confidence and the economy. He suspects the cash rate will be cut again.

“Consumers are now very rate sensitive and when they rise they are likely to stop spending and revert to saving.

“This is why we will see rates remain at historical lows or around levels we have experienced for the last number of years. Over the short term it will likely be lower.”

The cash rate has been below what was once considered the normal level of 5% since November, 2008, when the GFC was at its peak.

“The GFC has been a game changer as far as interest rates are concerned and it's hard to imagine when they could ever return to those pre-GFC levels,” Kolenda said.

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