As the Reserve Bank board prepares to sit down for its second meeting of the year next Tuesday, a number of key players and experts have begun to shift their predictions regarding a possible rate rise before the end of 2018.
Both ANZ and NAB have scaled back their predictions of a double interest rate rise in 2018 - with NAB Chief Economist, Alan Oster, instead flagging the possibility of a single rate rise in November this year, while ANZ’s Head of Australian Economics, David Plank, viewed early 2019 as now being the most likely time for a rate change.
According to Mozo Product Data Manager, Peter Marshall, slow levels of employment and wage growth - which are keeping pressure on household budgets - coupled with continued weak inflation, were in part responsible for the change in outlook.
“A lot of the indicators are still quite soft at present, and while there’s optimism that they’re going to improve, that optimism has been around for awhile now and nothing’s really changed,” he said.
“As a result it’s hard to see right now how we’re going to go from being very flat, economically speaking, to a situation where the RBA is comfortable with raising rates - which is why there’s been a building case in recent weeks for no rate rise or change at all before very late this year.”
In the short term, the overwhelming consensus among experts points towards the official 1.50% cash rate remaining unchanged at the RBA board meeting on Tuesday, with the ASX’s ‘RBA Rate Indicator’ currently indicating a 100% chance of a hold.
If the RBA does keep the official cash rate steady at a record low level, it will mark a 19th consecutive month without change and well over seven years since the last rate rise back in November 2010.
What would another hold mean for borrowers and investors?
With the almost certain likelihood of a rate hold at Tuesday’s meeting and, according to the experts, a stable cash rate for the short term at least, the impact on Australians will largely depend on whether they’re a borrower or saver.
For Aussies looking to find a safe place to stash their savings, there has been little joy in either savings account or term deposit interest rates of late - both having trended down in recent months.
And according to Marshall, savers aren’t likely to find any relief just yet.
“As long as the rate outlook continues to remain flat the banks will continue to compete on mortgage rates, but that means they’re going to want to pay less to depositors so there’s no reason that the current trend of lower deposit account interest rates won’t continue.”
As Marshall notes, the outlook remains brighter for prospective property buyers looking for a competitive home loan deal - especially as banks compete amongst each other for customers.
“Rates, particularly for those making principal and interest repayments, have sharpened a bit to the benefit of borrowers. We’ve also begun to see some unwinding of the APRA-influenced price premiums placed on interest-only loans as banks now have more capacity to take on new borrowers,” he said.
“While it’s currently a good time for borrowers, at least historically speaking, Australians should always be cautious because things aren’t likely to stay the way they are forever.”
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