Amid concerns that low wages and record levels of debt could paralyse household spending for years, economists from Westpac have forecast that the Reserve Bank’s official cash rate could be locked in until 2020.
Bill Evans, Westpac’s economic spokesman and chief economist, broke from other major banks and financial markets, saying that there was little chance of official rates rising until at least 2020.
A stagnant official cash rate would be a boon to the struggling Western Australian property market, whereas rate hikes would exacerbate mortgage stress.
“We are not convinced that the cash rate will need to rise any time throughout the course of 2017, 2018 or 2019,” Evans said.
As recently as last week, economists at Australia and New Zealand Banking Group (ANZ) predicted two interest rate rises by the end of 2018. This would add more than $80 a month to repayments on a $300,000 mortgage.
But Evans, who accurately predicted that the RBA would cut rates earlier this decade even though other economists had forecasted rate rises, said two of the biggest issues facing the economy right now are stagnant wages and declining savings.
“Households will need to protect that fragile savings rate and pressures will emerge on consumer spending,” he said.
Home loan borrowers have been responding to predictions of rate rises, with the proportion of borrowers fixing their mortgage rates hitting 18.7% in July. This was the highest level since mid-2013 when the official cash rate was 2.75%.
Collections: Mortgage News
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