Although suggesting that interest rates seem unlikely to change for about 12 months, an Illawarra academic has encouraged home owners to protect themselves.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
The Reserve Bank of Australia has kept the official cash rate on hold at 1.5 per cent for another month, continuing the longest stretch of policy stability on record.
The RBA had been widely expected to retain the rate on Tuesday.
It is now more than two years since the RBA last moved the cash rate and close to ten years since the RBA raised interest rates.
Alex Frino, Professor of Economics at the University of Wollongong said Tuesday’s decision was completely expected.
“The Reserve Bank uses the cash rate, or monetary policy essentially, and their objective is to keep inflation below three per cent, or in the two to three per cent range,” he said.
“Everyone is forecasting inflation for the next two to three years within the two to three per cent range.
“Based on the objective of monetary policy, there is no reason for the government to change or move interest rates.
“Based on all the forecasts we have from both Treasury and external forecasters, there’s nothing in the short-term, and I’m talking in the next 12-odd months, for interest rates to be changed.
“There’s no inflationary pressures, no immediate employment or economic growth reasons for them to change the cash rate.”
Although Prof Frino predicted interest rates were unlikely to change for approximately 12 months, he suggested, “the only direction that it can take is upwards, because they’re at historically low levels”.
Prof Frino’s advice to home owners was that there was “no silver bullet”.
He said any long-term expected changes in the cash rate are already factored into long-term fixed rates.
“So there’s no advantage to switching to fixed rates because you think you’re getting a better deal, as it’s already priced in,” he said.
“There’s no silver bullet here.
“The advice is over the next 12 months, (is that) people who have borrowed money are able to pay down as much of their loan as possible.
“That’s probably the best advice, because after that interest rates can only move in one possible direction, and that’s up.
“So now’s a good time to be paying off as much of your loan as possible, and to be managing your debt.”
In a statement, RBA governor Philip Lowe said following the decision that the economy was still performing in line with the bank's forecasts.
“The recent data on the Australian economy continue to be consistent with the Bank's central forecast for GDP growth to average a bit above three per cent in 2018 and 2019,” he said.