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Are Interest Rates About To Rise?

Written by Michal Park – Senior Adviser

Remember when the Reserve Bank of Australia came out and said interest rates would not rise until 2024? Well, that was before Property markets went absolutely ballistic. The latest Core Logic data reveals home values swelled by 2.1% in February, the strongest month-on-month change in more than 17 years. This has led to speculation that interest rates may rise earlier than expected (some even suggesting by December this year!) to put the brakes on escalating property prices.

I’m here to tell you, rates will not rise before 2024.

Let’s break it down.

  1. Interest rates were reduced predominantly to stimulate economy activity.  Whilst GDP figures are looking better than anticipated – and the recession is technically over – there is still a long way to go and many a headwind to encounter before the landscape gets to a point where rates can be lifted.
  2. Interest rates were reduced predominantly to stimulate economic activity.  Whilst GDP figures are looking better than anticipated – and the recession is technically over – there is still a long way to go and many a headwind to encounter before the landscape gets to a point where rates can be lifted.
  3. The RBA does not meddle in property prices.  Their only goal is a recovery in the economy, in jobs and in wages.  Interest rate reductions may have had the side effect of enabling more people to borrow and thus place upward pressure on the property market – but keeping rates low is primarily designed to provide consumers and businesses with the confidence to invest without having to worry about what rates are going to do.
  4. To dampen property prices, regulators will most likely scale back government incentives (given most buyers are First Homebuyers and new construction rather than investors) or potentially introduce new caps on risky lending.  The RBA does not need to get involved here.
  5. Commsec Chief Economist Craig James says a rate hike is not imminent and I believe him.

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