RBA ‘On Hold Until 2020’

Posted on 4/07/2018  
RBA ‘On Hold Until 2020’

The Reserve Bank won’t lift the official interest rate until 2020, according to AMP Capital chief economist Shane Oliver.

This follows this week’s decision by the RBA board to hold the cash rate at its current record low of 1.5%, in a move predicted by most industry pundits.

None of the surveyed respondents on finder.com.au’s panel of industry experts predicted a rate change, while over 95% of brokers surveyed by HashChing expected to see a hold.

The decision to stay at 1.5% sees the cash rate being held for a record 21 meetings in a row. Members of the finder.com.au panel overwhelmingly stated that the conditions are not in place yet to see a rate change.

Nerida Conisbee from REA Group says that while businesses are confident in the current economy, consumers are not. “Until this turns around, I think it is unlikely we will see an interest rate rise,” Conisbee says.

Real Estate Institute of NSW president Leanne Pilkington says the decision to hold is appropriate for the current economic climate.

“Global economic forces, the widening wage gap between older and younger working Australians, and outcomes of the banking royal commission might all impact the RBA’s outlook in the near term, but for now it’s important that interest rates remain steady,” Pilkington says.

Capital Economics’ Paul Dales says the RBA is more concerned about the results of the Banking Royal Commission, as well as the conditions of the current global trade dispute.

Oliver of AMP Capital says a brightening outlook for mining investment, strengthening non-mining investment, booming infrastructure spending and strong export growth are likely to be offset by lower dwelling investment and constrained consumer spending.

“As a result, growth is likely to average around 2.5-3% which is below RBA expectations for growth to move up to 3.25%,” he says. “This in turn means that spare capacity in the economy will remain high, which will keep wages growth low and inflation down.

“On top of this, house prices likely have more downside in Sydney and Melbourne, banks are tightening lending standards and the risks of a US-driven trade war are posing downside risks to the global growth outlook.”

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