The days of super-low interest rates are coming to an end: David Bassanese
The “days of super-low interest rates are coming to an end,” according to the Australian Financial Review economic commentator David Bassanese.
David Bassanese suggests that borrowers should not count on the variable rates remaining at current lows levels.
He suggest they should consider locking in lower funding costs while they still can.
The Reserve Bank cut Australia’s official cash rate to an all-time low of 2.75% two months ago and the United States Federal Reserve has indicated it will keep the US official cash rate hovering around zero.
However, speculation is growing that with a more robust forecast for the US economy, the Fed will ease off its bond-buying and money-printing as early as September and David Bassanese says this has “professional traders jumpy”.
The yield for a 10-year US Government Bond has risen from 1.6% in May to a recent high of 2.5%, while Australian government bond yields “have not been immune”.
The rising bond yields coupled with the declining $AUD suggests that the RBA may resist another rates cut as trade exposed industries become more internationally price competitive.
David Bannanese believes it “would be prudent to factor in at least one, and ideally two, percentage point interest rate increases" from the RBA over the next few years.
He predicts that rising interest rates will place downward pressure on currently owned asset prices and could "soften" home prices.
He also noted that rising interest rates were a positive sign that economic conditions are normalising and tempering the "risks of another excessive build-up in debt levels" .
