RBA board agrees: the only way for rates to go is up

RESERVE Bank board members 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 for the cash rate will be a rise is shared by the other eight board mem- bers. “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 hike in the near term. The cash rate has stood at an all-time low of 1.5 per cent since August 2016, and analysts expect it to remain there until mid next year.

ANZ head of Australian economics David Plank said the minutes indicated the RBA board saw a case for hiking 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 principaland-interest loans is impacting,” he said.

“This is unlikely to be until May 2019 at the earliest, in our view.”

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

Its minutes indicate the central bank is not too concerned about the market, 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. New tariffs announced by the US, and China’s response with its own tariffs, are also a concern for the RBA, although the board believes they are unlikely to have a significant effect on global trade for now.

“The possibility of an escalation in trade restrictions represented a risk to the global outlook that needed to be monitored closely,” the minutes said.