Australian Central Bank Likely To Raise Interest Rates In The New Year

Post by Sharat on November 21, 2017 · Under News · Comments Off on Australian Central Bank Likely To Raise Interest Rates In The New Year 

Recently the Bank of England chose to raise interest rates for the first time in a decade and experts believe that Australia could respond with its own hike in interest rates. This is because one of the things the Australian central bank looks at when deciding upon interest rates, is the rates that exist in similar countries such as the UK and US. This is because the interest rates of those countries impact just how much money flows into Australia.

Following suit

The Federal Reserve hiked interest rates earlier in the year and now the Bank of England has done the same at the start of this month. This means the RBA may decide it too will have to raise Australian interest rates as well. Whilst US and UK rates don’t directly impact the cash rate in Australia, their decision to hike their rates will lower the investment flows into Australia which means the exchange rate will stay lower and this gives the central bank the room to lift rates without negatively impacting Australian exports.

Rate hike won’t happen immediately

If you are worried about an imminent rate hike, have no fear, there are still domestic considerations to take into account which have a more direct impact on Australian monetary policy. The central bank will be keeping a close watch on unemployment, wages, inflation and housing affordability. Whilst many of these indicators have been trending up, unemployment figures have been looking positive and wages are expected to rise. Inflation continues to remain below the desired level so it is unlikely that the Reserve Bank will rush into any decision.

Expect rates to rise by the middle of next year

In the next six months if economic indicators continue to look good and there are no major shocks, then the central bank will probably feel comfortable enough to hike interest rates. If it does choose to do so, then you should expect the central bank to do so slowly and cautiously. Experts believe that there will be a rate hike at least by the middle of next year. If that happens, Australian borrowers who purchased property in the midst of a red-hot market will have to plan for higher repayments on their mortgages. This is because although lenders are not required to raise their rates in tandem with the central bank, it is most likely that they will.

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