Low interest rates may be “new normal”: John Kolenda

While there has been talk around when interest rates will rise again, it appears that, for now at least, low interest rates might just be the new normal for investors.

After the Reserve Bank kept the interest rate on hold on Tuesday, surprising no one, 1300HomeLoan’s managing director John Kolenda has suggested that, despite continual suggestions of where the future rate may be heading, we’re likely to stick with lows for the foreseeable future. This, he noted, would make low rates the “new normal”.

“Prior to the global financial crisis the norm for the RBA's official rate was around the 5% mark,” he said.

“The historical rates over the last 30 years have been much higher than for the previous few years. Consumer confidence is playing a bigger role in determining rate movements.”

Potential increases over the next six to 12 months will still be low compared to historical rates, he noted.

“Based on the sensitivity of consumers to rate rises, we are likely to see medium term rates at historical lows and smaller variances in movement,” he said.

He claimed that anyone trying to predict a rise is “a brave person” until there’s more positive data broadly, rather than just rising house prices that the Reserve Bank has expressed concerns about.

 “In the current economic climate, the RBA has no choice but to keep rates on hold and likely to tread carefully if they raise sometime later this year,” he said, pointing to weak retail results, a slowdown in the resources sector and unemployment growth as counter balances to a strong housing market.