Official interest rates could stay put for the rest of the decade according to Westpac’s chief economist Bill Evans.
Mr Evans says economists who are predicting interest rate rises next year are forgetting about low wages and high debts holding the economy back.
“We are not convinced that the cash rate will need to rise any time throughout the course of 2017, 2018 or 2019,” he said.
The call flies in the face of some other senior economists who are expecting rates to rise in 2018.
Instead, Mr Evans says the failure of wages to grow and rising debt means households were using saving to maintain their spending and any interest rate rises would hurt crucial consumer spending.
“Households will need to protect that fragile savings rate and pressures will emerge on consumer spending,” he said.
“Markets may be underestimating the impact on the interest rate-sensitive housing market of developments which are folding without official rate hikes.”
Borrowers are moving to fix their rates in anticipation of rate hikes, with those doing so up to 18.7 per cent in July, which is the highest it has been since 2013.
Mr Evans thinks the RBA’s forecasts of economic growth between 3.25-3.5 per cent for the next two years will probably turn out to be a little overly-optimistic, and will more likely sit around the 2.5 per cent mark.
Mr Evans also pointed to the effects the Chinese economy could have on our interest rates.
“Finally, the ongoing legacy of elevated risk aversion, which continues ten years after the global financial crisis, is contributing to unusually steady interest rates around the world,” he said.
“Under our figuring, on the basis that this risk aversion persists for a few more years, a 40-month stretch of steady rates in Australia would not be out of place.”