A guess at any rate
Townsville WILL home loan interest rates go up eight times during the next two years?
I don’t know and neither does the person who made the prediction: exReserve Bank board member, onetime Paul Keating adviser and biographer, and before all that a journalist, John Edwards.
I might add that those last two roles gave him an eye for a headline; albeit in the first case watching his master dangle them before the slavering acolytes in the Canberra Press Gallery.
While in his now long- distant journalism days, Edwards wrote some of the finest and most readable prose we’ve seen in the AFR – and not about interest rates, but an extended series of Jack Kerouac- like pieces on his own “road trip” across America.
But I digress. Somewhat more importantly than what either he or I thinks, there’s not a single person actually inside the RBA who would have the slightest clue of how many rate rises might be delivered by them/ it over 2018 and 2019.
Or indeed, bluntly, sitting here right at the start of the 2017- 18 financial year, whether we will see any ( official) rate rises at all through that period.
We certainly won’t see a rate rise at the next RBA meeting on this coming Tuesday or at following ( monthly) meetings either.
But, as you should and probably do know, that does not mean you don’t get rate rises directly from the banks. Although they should get some credit for reasonably targeting them.
I’ve written before that you should pencil in the RBA meeting on Melbourne Cup Day in early November, but that you should pencil it in only in orange not red.
Melbourne Cup Day is the all- time “favourite” meeting for the RBA to change its rate and mostly when it’s lifting, on the back of the latest inflation figures released late in October.
Also, it’s nearly half- a- year away; time enough for everyone but es- pecially the RBA to get a much clearer picture of what’s developing not just in the local economy but the global one as well – the US, China and even formerly irrelevant ( except for causing trouble) Europe.
I am certainly not predicting a rate change at that meeting – that’s why orange not red. And note, I wrote and meant “change” not “hike”; I still wouldn’t ( and nor indeed, more importantly would the RBA) entirely rule out its next official move still possibly being a cut.
Now, yes, as Edwards was articulating, if Australia’s economy tracks broadly – upward – in line with what the RBA is currently forecasting, that would almost certainly be accompanied by rate rises.
But even in that scenario I can’t really see eight before the end of 2019. Remember, it’s taken the Fed eight years to deliver four hikes, and coming from zero, not our RBA’s 1.5 per cent.
You need though to understand that the RBA’s forecasts include very wide ranges; so that 2019 could be a year of either sluggish growth and no rate rises, or growth not far short of booming and so probable rate rises, or indeed something entirely different.
We don’t live just in highly volatile times but the most unpredictable; made even more unpredictable by the never- before- seen dynamic of the Fed lifting its rate from zero.
Goodness me, the RBA doesn’t have anything “programmed” for this year – it will take each meeting as it comes; true, in the context of its broad expectations and analytical updating; and that goes double for 2018 and quadruple for 2019.
The best thing to be said about Edwards’s prediction is that everyone – including property speculators – should sincerely hope he gets it right.
Interest rates going up eight times over that period would signal a very attractive economic environment in Australia; and indeed a very attractive broader global environment.
At one end, apart from everything else, it would mean RBA governor Philip Lowe getting what he wished for a week or so back ( on your behalf) – bigger wage increases. At the other end it would signal a property market that hadn’t imploded.
Either – stagnant wages or plunging property prices – would certainly rule out big rate hikes. But do you really want that trade; or the bigger disasters that might be unfolding behind that?
A world of rate hikes would be better for property investors, even accounting for the interest pain.