Interest rates predicted to stay on hold for the next 12 months

Westpac’s Chief Economist Bill Evans has recently discussed interest rates in the July edition of Westpac’s ‘Business Focus.’ After 11 consecutive months of the Reserve Bank leaving the cash rate on hold, predictions are this may continue well into 2018, with market speculation that a 25 base points hike will come in August next year.

 

Interestingly, Mr Evans himself has indicated if interest rates were to move next year, he feels it would be down, not up.

 

In the 2015/2016 period, the banks raised rates by an average of 27 base points, comparatively, this rates cycle is sitting at an average of 28 base points so far. With regards to owner-occupier principal and interest loans, there has been no increase since 2015, steady at 17 base points.

 

From an interest rate perspective, the property market is an idyllic investment space in the current climate, especially in Brisbane with lower median house prices (in comparison to say Sydney or Melbourne), but the banks are tightening their policies around lending, especially interest-only loans targeted to the investor. These loans make up approximately 40 per cent of the banks’ mortgage portfolios. In recent months, investor interest-only loans have increased by 76 base points.

 

Mr Evans says Westpac Bank is taking a more reserved outlook for GDP growth for Australia in 2018, predicting 2.5% growth, where the Reserve Bank is forecasting 3.25%; which is in-line with their anticipated interest rate hike in 2018 as mentioned above. 

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