Interest rates only going one way

RESERVE Bank board members unanimously believe that the next interest-rate move will be an increase, but it may not come for some time yet.

Minutes of the RBA’s board meeting this month show that governor Philip Lowe’s view that the next move will be a rise is shared by the other eight board members.

“In current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down,” the minutes, released yesterday, said.

But with unemployment only falling gradually and inflation still below the RBA’s target range, the board members also agreed there was not a strong case for a rate increase in the near term.

The cash rate has stood at a record low 1.5 per cent since August 2016, and analysts expect it to remain there until the middle of next year.

ANZ head of Australian economics David Plank said the minutes indicated the RBA board saw a case for raising rates, but would wait for the case to strengthen. “We think the uncertainty about the outlook for household spending will constrain (the RBA) until wages accelerate meaningfully and the bank gets more comfortable with how the shift from interest-only loans to principal-and-interest loans is impacting,” he said.

“This is unlikely to be until May 2019 at the earliest.”

The RBA board is also watching the weakness in house prices in Melbourne and Sydney, noting a fall of just under 5 per cent in Sydney since the peak last year.

But its minutes indicate not too much concern, saying that the board members also noted that there had been falls of about 10 per cent in some cities within the past 15 years.