The debate is on again – what will happen to interest rates next
AMP chief economist Shane Oliver, says rates will fall further, but don’t expect massive cuts.
On the other hand Westpac has predicted a further 0.75% drop in rates, while markets are pricing in up to 110bps over the next year.
However, Oliver told Australian BrokerNews it is unlikely the Reserve Bank will move aggressively on rates.
“There’s nothing to suggest an aggressive easing cycle,” Oliver said. “Seventy-five to 100 sounds a bit extreme to me. To get those kind of cuts the economy would have to fall apart, which I don’t think will occur.”
Cuts this aggressive would only occur if the crisis in Europe severely deepened or commodity prices crashed. Instead, Oliver has predicted a milder easing of rates in the year ahead.
“Certainly the risks are there, but I think a more likely scenario is we maybe get another 25, or at most 50. I think the market has probably priced in a bit too much,” he said.
While deep cuts to the cash rate are unlikely, Oliver stated it is even more unlikely that the RBA will return to tightening rates anytime soon.
“The resumption of rate hikes and the shift onto higher levels is probably very unlikely. There’s more risk that the market’s right with its 110bps of cuts,” Oliver said.
A series of rate increases would likely push stressed homeowners over the edge and cause a “U.S.-type scenario”, Oliver stated. Last year’s rate hike proved that mortgage holders are more sensitive to interest rate movements than they were prior to the GFC, meaning slightly higher rates could have far more profound consequences.
“What the RBA was talking about as being mildly restrictive was probably quite tight. The mortgage rate in the historical context was quite low. It wasn’t as if it was anywhere near previous highs, but I think people’s attitudes have changed. Therefore, what was thought to be mildly restrictive was actually quite tight, and now the RBA is having to correct that,” Oliver said.
Source: Brokers News
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.