The end is in sight for record low interest rates, but don’t expect a change to the cash rate at the first Reserve Bank board meeting of 2016 this Tuesday (2 February, 2016), according to a survey of 29 experts and economists.
In their Reserve Bank Survey all the experts questioned, expect the cash rate to remain on hold at 2 percent, but perhaps not for much longer.
One in three (34 percent) expect a rate rise in 2016, with more than half (52 percent) predicting a rate rise next year.
56 percent of some of the nation’s most prominent experts are forecasting the Reserve Bank is unlikely to cut rates any further this year.
The cash rate has been on hold at 2 percent since May 2015.
Just 24 percent of experts predict the cash rate will drop this year, and if a rate cut is coming it will be by June.`
Only BIS Shrapnel’s Richard Robinson believes Australians can expect another cash rate drop beyond 2016.
Bessie Hassan, Consumer Advocate at finder.com.au, says it’s not surprising that the popularity of fixed rate home loans is rising.
“Over the past year the cash rate has fallen twice – in February and May 2015 – and finding better home loan rates has become a priority for many Australians.
“For instance, interest in three-year fixed rates on finder.com.au has almost doubled (80 percent) over the past three months compared to the same period the year before, while the popularity of two-year fixed loans has swelled by a staggering 95 percent.
“Interest rates in Australia are at historically low levels and the feeling is they are not going to get much lower. Borrowers are likely worried the pendulum will suddenly swing back and interest rates will start to rise.”
Analysis found the average three-year fixed loan rate among the big four banks is 4.62 percent, while just a year ago this month, that figure was at 5.13 percent.
Ms Hassan says many borrowers fix their loans because they want the certainty of knowing exactly what their repayments are and fear not being able to make the repayments should rates rise. While others fix because they are certain rates are at the bottom of the cycle.
But those considering fixing their loan are being warned to consider the hefty break fees that can come with exiting the loan early.
“Breaking a home loan during a fixed interest period can be hugely expensive, which is why homeowners should always do their research. For example, on a three year fixed rate of 4.59 percent, a break cost one year into the loan could set you back about $3,000, or on a $500,000 mortgage could exceed $5,000. Breaking a loan one year into a five year fixed deal, with an average rate of 4.92 percent, could cost you $10,000.
For those considering refinancing, the crucial point when switching is to make sure that potential savings of moving to a loan with a lower interest rate outweighs all the different costs you incur by switching loans.
What the experts had to say in the Monthly Reserve Bank Survey:
Shane Oliver, AMP Capital:
“I think that given the emerging softening in the housing cycle, the ongoing mining downturn and renewed global market turmoil that the risks to growth are on the downside and given very low inflation the RBA should ease again. But I don’t think it’s convinced just yet.”
Garry Shilson-Josling, Australian Associated Press:
“Unemployment is drifting down, the Aussie dollar is 35 US cents lower than it was three years ago and the cash rate is already at a record low. The argument for further cuts right now is wafer-thin. Thinner, in fact.”
Peter Munckton, Bank of Queensland:
“They are comfortable with the current level of interest rates.”
Steven Pambris, Bank Of Sydney:
“Waiting to assess worsening economic environment and ensure timing of move is appropriate to maximize benefit.”
Richard Robinson, Bis Shrapnel:
“Although economic growth is slow, employment growth and unemployment rate are OK. The RBA can afford to wait and keep rate cuts up its sleeve for growth slows.”
Chris Caton, BT Financial Group:
“The RBA remains a reluctant cutter. That said, if the current financial market volatility continues they may cut in Feb (probability 25%).”
Michael Blythe, CBA:
“Economy does not need additional stimulus at this point. Other factors like lower AUD are helping.”
Dr Andrew Wilson, Domain Group:
“Latest jobs data positive – but concerns over global economy may mean a cut to start year off on front foot as per last year.”
Saul Eslake, Economist:
“Nothing has happened since the last meeting to warrant a change in monetary policy settings. The fall in the exchange rate since early December is a sufficient response to the deterioration in global financial market sentiment.”
Scott Morgan, Greater Building Society:
“The RBA doesn’t have enough ammunition to warrant a change. The economic data doesn’t support a change at this stage. I can’t see cut given some of the commentary from the RBA in recent months. Any change up or down will be influenced by changes in business and consumer confidence, the work of Government and business does to undertake reforms that boost economic performance, and global economic changes.”
Mark Brimble, Griffith University:
“Market volatility generally – too many moving parts (property values, China, low commodity prices, forthcoming job losses in mining and automotive, US rate rise, geopolitical uncertainty, Iran sanctions) and the desire to see how the market settles to the ‘new norm’. Bias remains to the down side as the economy is likely to need support in face of significant and growing head winds.”
Jason Spencer, Homely.com.au:
“Reserve Bank will be delighted to see the exchange rate below US $.70, house listing numbers also down seasonally adjusted.”
Shane Garrett, Housing Industry Association:
“The balance between growth and inflation does not necessitate a rate reduction at this time. Events in China may cause this to change, however.”
John Caelli, ME:
“The RBA won’t rush to cut rates and domestic measures such as employment data, remain quite good. They will be closely monitoring external factors such as Chinese growth.”
Mark Crosby, Melbourne Business School:
“Despite a great deal of international uncertainty and mixed local signals, with the Fed having just raised rates it would seem premature to cut and too risky to raise.”
Katrina Ell, Moody’s Analytics:
“The RBA is maintaining an easing bias but domestic demand is gradually healing and the Australian dollar is depreciating.”
Lisa Montgomery, Mortgage & Consumer Finance Expert:
“At this stage there is no clear data to suggest a change to the cash rate.”
Jessica Darnbrough, Mortgage Choice:
“At the December Board meeting, The Reserve Bank of Australia suggested a period of rate stability was the best course of action. With that said, I wouldn’t be surprised to see the Reserve Bank leave rates on hold for the next few months.”
Ken Sayer, Mortgage House:
“The market is looking for a lower floor but it might be too early at this stage.”
Chris Schade, MyState Bank:
“The RBA will take some more time to gauge the condition of the Australian economy in 2016 before making any change to the cash rate.”
Alan Oster, NAB:
“No change in data / outlook yet.”
Peter Boehm, onthehouse.com.au:
“No compelling reason to move at this stage but this may change over the coming months.”
Zoe Pointon, OpenAgent.com.au:
“Too much volatility in the markets right now and uncertainty about global growth to raise rates at the moment.”
Noel Whittaker, QUT:
“The world is full of uncertainty, but our employment figures have been optimistic.”
Janu Chan, St.George Bank:
“Low inflation will keep easing bias intact, but improving labour market should see the RBA leave rates on hold. Turmoil in financial markets will keep RBA watchful, but not sufficient to trigger a cut.”
Michael Witts, Treasurer:
“The economy continues in the transition phase that dominated 2015. The slightly weaker exchange rate is assisting. Current global equity volatility means the RBA will be on the sidelines.”
“I don’t think enough has changed in economic outlook, economy is re-balancing relatively well. non mining part had a good finish to 2015, very much in a wait and see mode.”
Nicki Hutley, Urbis:
“The economy is growing a moderate pace. Indicators for employment and inflation suggest current rate stance is appropriate.”