The Reserve Bank kept rates on hold this week, citing uncertainty in the global economy and on-target inflation data as the key reasons for leaving the cash rate at 4.5%.
But with economic indicators showing that the Australian economy is in better shape than expected, there are plenty of pundits predicting that interest rates are on their way up.
Some experts are expecting that an interest rate hike could be delivered by the RBA within the next 8 weeks, while others more conservatively forecast that the RBA will wait until early next year to lift rates.
We did a little research to compile the forecasts of some of the country’s leading economists and industry experts:
Annette Beacher, senior strategist, TD Securities
"The RBA can easily sit tight for the remainder of 2010."
Ben Dinte, economist, Macquarie
''While we don't expect the next rate change to come in October, they are likely to move before the end of the year.''
Craig James, chief economist, CommSec
“While there is a risk rates could rise late in the year, for now at least the Reserve Bank has no work to do.”
Felicity Emmett, senior economist, RB
“My guess is by November this year, after the next CPI report, strong data will prop them to increase rates again.”
Peter Jolly, research head, National Australia Bank
“I expect the next rate rise to be in February next year.”
Su-Lin Ong, senior economist, RBC
“There isn't a sense that there is any type of urgency to hike… But the next move is still up – probably in the first quarter of next year.”
Thomas Averill, managing director, Rochford Capital
“The uncertainty over the global outlook and moderating house prices have allowed the RBA to keep on hold for the time being, and this is likely to remain the case in the months ahead.”
The only way is up
While they can’t agree on a timeframe for rates to increase, one thing is for certain: the cash rate is definitely on it’s way up. Any suggestions of a rate reduction in the next 6-12 months have been firmly put to pasture, so borrowers should brace themselves for more expensive mortgage repayments in the months ahead.
There is also the strong possibility that banks and lenders will increase interest rates outside of an RBA decision.
An analysis by Credit Suisse has found that the major banks could raise their rates by up to 20 basis points, outside of the official cycle with the Reserve Bank. According to the Your Mortgage Basic Repayment Calculator, this would raise repayments on an average $300,000 mortgage by around $37 per month.
Commonwealth has been tipped as the first bank likely to move, because it has the largest share of the Australian residential mortgage market.
CBA chief executive Ralph Norris has already revealed that the bank's cost of funding on an average mortgage would rise by 40 basis points in the next year, and he admitted that these costs may be passed on to customers. If one big bank makes a move, the other big four are likely to follow.