Rates at 1%? It’s not so crazy
Diligent savers, myself included, have been punished by the Reserve Bank’s rate-cutting regime ever since the GFC hit, with interest rates down from over 7% in 2008 to just 1.5% today.
As much as I wish rates were going to head higher in the coming years, I actually think the opposite will happen, and they will be cut to 1% or below by 2020.
That might seem crazy but consider the facts. Household debt is at record highs; wage growth is non-existent; under-employment is rife; inflation is below the Reserve Bank’s target band; and retail sales growth suggests consumers are incredibly cautious.
Add to this the decline in the housing market, which is wiping tens of billions of dollars from the net wealth of households, and the case for a rate cut is actually rather compelling, especially if our banks continue to hit borrowers with out-of-cycle rate hikes, as they have done in the past few weeks.
The only question is, how low can they go? For me, we’ll see a cash rate of at least 1%, though I wouldn’t rule out the possibility of it going even lower than that.
Jordan Eliseo, chief economist, ABC Bullion