The RBA will meet for the final time this year tomorrow and look set to keep rates at 1.5%


It’s the final Reserve Bank board meeting tomorrow and it’s expected the nation’s central bank will keep the cash rate steady at 1.5 per cent.

While most economists think it’s a pretty solid bet tomorrow will see rates unchanged, the same can’t be said for predictions of future interest rate movements, with plenty of uncertainty and debate over where they will be headed over the foreseeable future.

Managing director of 1300HomeLoan, John Kolenda, told Broker News that there are plenty of different opinions about where interest rates are headed but he thinks fixed rates may certainly have bottomed out.

“The RBA will most likely sit on the fence post the Christmas surge and wait for more robust economic data through the first quarter of next year before we get real clarity about the direction of official rates,” he said.

“With the Government focus on the performance of banks, it would be unlikely lenders would raise their variable rates out of cycle to cover any increase in funding costs.”

“They have targeted fixed rates because they don’t get the attention variable rates receive.”

“We are likely to have to see several months’ data before we know where rates will go, but at this stage it’s more likely to be a rate rise rather than a decrease but there are many obstacles to navigate before we see the way forward,” he told Broker News.

There are plenty of economists who think the other way for 2017, and believe rates could get cut once again next year. They say while the economy continues to crawl along and inflation stagnates there would be no need for interest rate hikes from the RBA.

Paul Dale from Capital Economics is one such economist, he says the RBA will leave rates on hold and can see them cutting rates down to 1.0 per cent if the housing market slows.

It’s a view shared by Macquarie economist James McIntyre who points to the slow economy as reason to think rates are headed for more cuts next year.

Westpac chief economist Peter Evans spoke to Broker News and said the RBA looks set to move away from its policy of slashing rates.

“The policy mix over the last five years has been to slash interest rates thereby putting upward pressure on household debt despite its already excessive starting point,” he said.

“It appears that the Reserve Bank is no longer attracted to that policy mix.”

“The Government should not look to the RBA for a ‘short-term’ fix by further boosting household debt with even lower rates.”

“A lot would need to go wrong, and a lot would need to be done domestically for the RBA to cut below 1 per cent,” he told Broker News.

With so many different views on interest rates right now, all eyes will be on the RBA over the course of 2017 to see where it takes its official cash rate.


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