Uncomfortably hot Sydney and Melbourne property markets argue against rate cut: Shane Oliver

Interest rates have 'probably' bottomed and the next move by the RBA will be a hike but around the second half of 2018, according to AMP Capital's Shane Oliver.

In his latest research note he said the uncomfortably hot Sydney and Melbourne property markets, RBA expectations that GDP growth will return to around 3 percent and underlying inflation has bottomed argue against a rate cut.

"Against this, high unemployment and underemployment, the too high $A,  fragile economic growth and downside risks to underlying inflation all argue against a hike," he said.

"Meanwhile, bank rate hikes, regulatory moves to tighten lending standards and hopefully action in the May budget on the capital gains tax discount  should help deal with financial stability risks around house prices and household debt giving the RBA flexibility to set rates in the best interest of the wider economy and not just the Sydney and Melbourne property markets.

"The drip feed of cooling measures and negative news flow bank rate hikes, tightening measures by APRA and ASIC, talk of increased bank capital requirements which will only result in more out of cycle rate hikes and the frenzy of authorities and commentators warning about the risks of property markets.

"For investors who think that the 10-15 percent pa average home price gains of the last four or five years are a guide to the future its worth having a look at Perth home prices which are where they were ten years ago.

"Ten years of zero capital growth in Sydney and Melbourne would mean a housing return of just the net rental yield which is 2 percent or less."