Interest Rates - where to from here?
What an interesting 12 months it has been for interest rates. We started 2015 with the official cash rate at 2.5% - a figure that was already a historic low. Then in February and May the Reserve Bank of Australia (RBA) announced two respective rate cuts of 0.25% to bring the cash rate down to just 2%. On 2nd February 2016, the Reserve Bank of Australia Board decided to leave the cash rate at 2%1.
With inflation low at 1.7%, an official rate hike is unlikely in the near term, and many economists are subscribing to the 'low for longer' outlook for the official cash rate.
Lenders introduced out of cycle rate increases independent of RBA decisions late last year. This follows initiatives introduced by the Australian Prudential Regulation Authority (APRA) in late 2014 and again in
July 2015.
In a nutshell these initiatives were designed to put a cap on lending to property investors. It was a move designed to take some of the heat out of the property market and thereby underpin sustainable house price growth and avoid the potential of a housing bubble.
In the February 2016 Interest Rate Decision Statement issued by the RBA Governor - Glenn Stevens, the Board judged that there were reasonable prospects for continued growth in the economy. With inflation close to target, surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of 2015. Glenn Stevens concluded that "Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand."
