No interest rate hikes for some time yet

Pete WargentDecember 7, 2020

No surprises that the cash rate stayed on hold in December at 2.50%.

But what for next year?

We've had some interesting developments on the debt ceiling in Australia, and in particular some interesting news in the National Accounts.

GDP growth for the quarter came in at a somewhat disappointing 0.6% quarter on quarter and 2.3% year on year.

In other words, the Aussie economy is growing 'below trend' (which in Australia essentially means 3.00%-3.50% depending on your chosen timescale and your source).

While retail sales have picked up, consumer spending remains fairly weak, and it's clear that dwelling construction has not picked up to anything like the level that the Reserve Bank was hoping.

Business confidence is quite fragile and mining investment expenditure is likely to fall over the next year or two.

What does it mean for interest rates?

In a nutshell, there will be no hikes for quite some time to the cash rate, perhaps not even until 2015 depending upon how the economy fares.

Here's what the futures markets say, which is to say a one-in-four chance of rate cut to just 2.25% at the next Reserve Bank meeting on February 4, 2014.

And here is the cash rate futures implied yield curve at the close of business on Wednesday, which on balance isn't seeing a hike to a cash rate of just 2.75% for some 15 months.

Source: ASX

Households will continue to enjoy very cheap mortgage repayments through 2014 while the economy struggles to rebound.

And we should enjoy it while it lasts. History shows that interest rates can - and will - run high at various points in time.


Pete Wargent
is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His new book 'Four Green Houses and a Red Hotel' is out now.

 


Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

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