Mid-Month Interest Rate Outlook – September 2017

The RBA’s Interest Rate Decision occurs on the first Tuesday of each month (except January), and two weeks later the minutes from that meeting are released.  This RBA announcement provides a detailed summary of the policy discussion, differences of views, and member votes.

You can read the RBA Minutes over here, or just keep reading to get a summary.

This month, the RBA said “a gradual increase in growth in wages and inflation was expected…”

If the RBA sees upward pressure on inflation that may be seen as creating a higher probability of an interest rate rise in the future.  A common early indicator of a changing interest rate outlook, is when you notice fixed rates changing and these can often happen fairly quickly (irrespective of what the RBA does with the official cash rate).

Over the last week or two, we’ve actually seen fixed rates coming down slightly.  That doesn’t mean rates might be headed down, but it may be an indicator that perhaps rates aren’t heading up quite as soon as previously expected (the expert opinion below might be spot on!).

Additionally, those with an Interest Only loan or an Investment loan have experienced significant increases in rates outside of the official cash rate movements over the last 6 months.  There may be some softening in this area, with a number of lenders cutting rates to these types of loans over the last couple of weeks.

Analysis of the RBA’s Interest Rate Decision this month

The RBA remains concerned with balancing house prices and inflation.

With regard to housing:

  • For established housing, a cooling in house price growth for Sydney appears to be happening, but less so in Melbourne where growth continues strongly.
  • A similar pattern is evident for Auction clearing rates.
  • Rent increases have remained low throughout Australia in most cities.
  • Across Australia, dwelling investment remained at high levels but building approvals have reduced:
    • Western Australia declined significantly.
    • Queensland has declined from high levels and stock or work in the pipeline was being worked down gradually.
    • Large amount of work remained in pipeline for New South Wales and Victoria so dwelling investment likely to remain at high levels for the next couple of years.

Additionally:

  • Further strengthening of the Aussie Dollar expected
  • Recent bumper jobs report could put pressure on wages growth

These two items apply some upward pressure on inflation, which in turn pressures interest rates.  However, the wage increases appear to be lowering.

This probably means the next move for interest rates is going to be an increase, but there is no hurry.

An experts view on Future Interest Rates – from the Business Insider Australia

Here’s my summary on this article about September’s RBA announcement…

  • The market appears to be expecting an interest rate rise in about a year – but Paul Dales from Capital Economics suggests a rate rise won’t occur until late 2019.

One thing is for certain – between now and late 2019 he will change his mind (because the market will also change).

This is all good news so far as I can see, rates are historically low but unlikely to go any lower (unless you manufacture your own rate cut with a refinance).

Whilst writing this I turn my mind back to, I think, it was May 2007 when the market was calling for a certain interest rate rise when the RBA made their decision.  The RBA surprised by not rising rates.  And then, about two months later rates dropped by 0.5% and the GFC hit.  Rates crashed.  Many people locked in when rates were high (very high by today’s standards) and were left devastated.

The point here?  Things will change, consider your home loan options.

Leave a Reply

Your email address will not be published. Required fields are marked *