RBA interest rates in July: expert prediction

Interest rates are likely to remain on hold at 1.5% this month, and probably right through to the end of 2018, given current economic factors.

Last week, Reserve Bank Governor Philip Lowe said that globally and at home in Australia, the economic outlook was improving. He mentioned a return of mining investment to “almost normal levels” and strengthened employment growth as factors bolstering the Aussie economy.

“Some economic indicators, like the GDP, have been reasonably good lately and there’s no clear case for a change, so I think it’s unlikely we’ll see a rate cut rate this month,” said Mozo Data Manager Peter Marshall.

“I expect they’ll continue to play the waiting game and see how things pan out before making any major changes.”

Some experts, such as the economists at JP Morgan, are still open to the chance of another rate cut, and others say a rate rise might be on the cards for sometime in 2018, but the general consensus seems to be that until there is a major shift in economic conditions, the RBA will sit tight on 1.50%.

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Marshall said that while a volatile and increasingly competitive property market will likely have the Reserve Bank shying from a rate cut, stagnant wages, inflation and lower than desired employment growth are all factors that are likely to make the RBA think twice before increasing the cash rate.

Record high household debt is also a concern, as global ratings agency, Moody's Investors Service, lowered the rating of 12 Aussie banks last week, citing the high level of household indebtedness as the key reason.

"The action we're taking is about the way households might respond if there is a change in their financial circumstances - that it makes them harder to repay their mortgage debts," Moody’s Vice President, Frank Mirenzi said.

The effect of this change is yet to be seen in concrete terms, but a downgraded rating means that finding overseas funding will be more expensive for Australian banks, and therefore drive up the cost of borrowing for bank customers as well.

The problem for borrowers is that banks can easily raise rates independently of the RBA’s decision, as Mozo has already seen many lenders do this year. And with the big bank levy soon coming into effect and the recent downgrade in credit rating for the major banks, there’s plenty of incentive for them to do so again.

Combined with the fact that the big banks have already more or less promised that the cost of the Government’s big bank levy - set to raise $6.2 billion over four years - will be passed on to customers, this means more rate hikes for mortgage holders and even lower savings returns may be in Australia’s future, whether the RBA moves or not.