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Economic growth and mining sector improvement could see interest rates hiked before 2019

27 February 2018

According to HSBC the RBA could look to lift interest rates by the second half of the year off the back of strong economic growth and mining sector improvement.

In the latest figures from their Asian Economics report, GDP growth figures were slightly above trend.

“The main force at work has been that mining investment is stabilizing, after having fallen significantly in recent years,” HSBC’s chief economist Paul Bloxham told The Adviser.

“At the same time, growth in the non-mining sectors has remained solid.”

“As conditions in the mining industry improve and the local labour market tightens up, we expect a modest pick-up in wages growth, which should in turn, see the RBA begin to normalize its current very stimulatory cash rate setting in 2018,” he said.

“Our central case is for the RBA to begin to lift its cash rate from mid-2018.”

The main factor holding back any moves on interest rates is the sluggish growth in wages which some economists tip will stay sluggish for some time yet despite economic improvements.

HSBC says the cooling housing markets in Melbourne and Sydney could also take some of the sting out of economic and wage growth.

Major bank the NAB also expect the RBA to lift rates at some point this year as long as there isn’t a severe correction in house prices, or a property bubble burst.

They say if house prices on the contrary keep rising, then it will make the case for higher rates this year stronger.

AMP Capital Capital’s Shane Oliver doesn’t think there’ll be any rate hikes until next year.

“House prices in Sydney and Melbourne are expected to fall by around 5 per cent or so this year,” he told The Adviser.

“Still low interest rates and support for first home buyers are providing some support and should help ensure only moderate price falls.”

“A property crash is unlikely in the absence of much higher interest rates and/or unemployment – both of which are unlikely,” he said.

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