Many are hopeful that the next interest rate will go down but there seems to be a lot of confidence that it will move up soon because of recent international and U.S. events. However, Chan & Naylor Tax Agents in Sydney talk about why it is unlikely that interest rates will move up.
Quantitative easing may have been over and according to Bank of America, the charts show that the amount of money going up and down is finally coming back to neutral. The U.S. Fed is tightening rates as well, suggesting that Australia will also need to raise its rates.
The RBA prefers the rates to go higher but against the international push to increase rates, the domestic economy does not suggest that Australia needs higher rates. National house prices have declined into negative levels because of the correction in Sydney but it is likely not something to worry about. After all, consolidation after years of property boom can be a good thing. However, even if the RBA increases rates, it may still not mean falling house prices. The RBA has never increased rates and house price growth still remains negative.
Meanwhile, labour under-utilisation is increasing, leading to falling wages growth. Not to mention, the country also has the most temporary work among all nations. It’s quite unlikely that wages will increase a lot or interest rates will be pressured. The cycle is tightening because of stricter loan standards, stalling house prices and consumer spending. Because of all these, it is very unlikely that the RBA will raise rates especially because of the international climate.
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