Interest rates in Australia may drop to less than 1% in two years, and may even go as flat as zero, a CLSA analyst has predicted.
Christopher Wood, managing director and chief strategist of the broking firm, is not convinced of both the impact and likelihood of a change in US monetary policy.
"It's not whether interest rates go up, it's whether Australian interest rates go to zero," Wood told The Australian Financial Review. "I think less than 1% within the next two years. They are going to end up a lot lower than people still imagine."
Wood added that the fall in gross domestic product means it is ideal for the Reserve Bank of Australia to keep on cutting interest rates, “but it is caught in a difficult position”.
"The issue from Australia's central bank standpoint is that it doesn't want to cut interest rates because of the housing market which, from a value point of view, is overextended," he said.
"You do have asset price rises driven by Chinese buying. But the bank is under pressure to cut rates, so I think it will have to come down to macroprudential controls and they are very political."
A recent report by Bloomberg stated an average interest rate forecast of 2% for the end of 2015.