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4 reasons why the RBA won’t raise interest rates

What’s ahead for interest rates?

If you listen to some of the “experts”, the Reserve Bank is under mounting pressure to lift interest rates.  RBA

Each month I’m on the panel of commentators for finder.com.au who predict what the RBA is going to do to interest rates that month as well as their likely future trend.

While many were predicting another cut this year, almost all have changed their tune and  now 40% believe it is a chance of an official interest rate rise before April next year.

According to ABC business editor Ian Verrender –  they’re dreaming

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In  and insightful article parent gives for good reasons why the RBA won’t increase interest rates in the near future.

He explains that Australia is in a radically different position to the rest of the developed world.

In fact, we’ve been on a different course for a decade.

We boomed while the rest of the world struggled through a horrendous recession.

Now, the opposite is true.

We’re running out of steam while everyone else is clawing their way out of the fog.

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So here are his four reasons why the Reserve Bank of Australia won’t be lifting the official rate any time soon:

1. Australian banks have already raised rates

In an effort to slow the runaway Melbourne and Sydney property markets, the Reserve Bank and the banking regulator imposed tougher lending rules on retail banks to stymie reckless lending. urban-sprawl

The banks responded by raising rates, particularly on interest only loans, which mostly are used by investors.

They now are paying much more than a year ago.

In addition, the new bank levy imposed by the Federal Government on the big four in the recent budget is also likely to be passed on and, in fact, smaller and regional banks have already shifted rates higher in anticipation.

Given rates already are on the up, and wages growth is the weakest on record, it would be a brave RBA governor who would contemplate a rise in the near future.

2. The RBA wants a weaker dollar

With Australia inflation already at low levels, our central bank is keen to let the currency slide back towards US70c and even lower, to help lift our global competitiveness, boost national income and inject some inflationary pressure.

However, a rate rise, or even hints of a rate rise, would see cash flow into the country to take advantage of our already comparatively high rates which would push the dollar even higher.

3. China’s economic outlook is shaky

It’s difficult to find anyone who holds an optimistic view of China in the medium term.  china real estate

Its growth is slowing, even when measured by the generally unreliable official figures, and its debt levels are extraordinary.

During the past two years, each time it has tried to rein in lending, the economy has nosedived and it has been forced to revert to stimulus, just to keep things on track.

That doesn’t bode well for commodity prices next year. And Australia’s economic fortunes are tied to commodities and China.

4. Our hot property markets

Just in case you didn’t realise, our recent property boom was created by the government.

The idea back in 2012 was to pump up the east coast housing and construction markets to absorb all those workers coming out of the west coast resources boom. house computer search property news media web

It worked … sort of.

Housing starts and construction soared and property prices rose considerably.

The only problem was that most first-home buyers were permanently locked out of the market.

This has all taken place during the weakest period of wages growth on record.

Raising interest rates could run the risk of widespread defaults, which would put our banks under extreme pressure and could even cause a recession.

A rate rise? Don’t hold your breath.

Read more: ABC |  Interest rate hikes: Here’s the four reasons why the RBA can’t raise rates



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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