Where to for Interest Rates for 2017?????
The Big Question for Mortgage Holders and Investors for 2017 is;
What is going to happen to Interest Rates?
The direction of interest rates is increasingly uncertain and movement in 2017 is dependent on a number of factors.
In the first quarter of 2016 inflation fell below 2%, causing enough concern for the Reserve Bank of Australia to make two interest rate cuts in quick succession.
Inflation is now expected to remain low and the RBA has adjusted and included this forecast in its outlook. Another low inflation figure on its own is unlikely to trigger further interest rate cuts.
Although unemployment has remained relatively stable throughout 2016, the RBA is concerned about capacity.
Of particular concern is the number of people who are underemployed, that is working part-time but who want to work more hours.
This implies there is more capacity in the labour market than the unemployment rate is currently showing.
If this starts to lead to an increase in unemployment, then it is likely that the RBA will cut rates in an effort to stimulate the labour market.
The RBA thinks the housing market has slowed since 2015.
The market is also operating at different speeds in different cities with Sydney and Melbourne seeing strong growth, compared with more moderate growth in other cities.
But given that house prices in Sydney and Melbourne appear to be accelerating again, there is no doubt the strength of the housing market will weigh upon any rates decision.
Well Where are they going??
It is very difficult to predict. My expectation is that the Reserve Bank will leave rates stable or even cut more from the official cash rate. It is unlikely that we will see an official rate rise. In saying that there is no guarantee that banks will leave interest rates in line with the official movement of the Reserve Bank.