Interest rate confusion seizes the nation

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According to Westpac, consumers are confused about the prospect for interest rates:

The Feb, Jun and Aug Westpac-Melbourne Institute Consumer surveys include an extra question about expectations for mortgage rates over the next 12 months. The Aug survey showed a significant shift with consumers now evenly split on the direction of rates compared with 52% expecting higher rates in the Jun survey.
• Of those with a view, 32.7% expect rates to rise, 34.7% expect no change and 32.5% expect rates to fall. That compares to the Jun survey which found 52% expected rates to fall – an outright majority if a very slender one. The Aug survey results were even more evenly balanced than in Feb when more respondents expected rates to rise than fall.
• Consumers’ lack of consensus on the rate outlook likely reflects several factors. The inflation backdrop looks benign – average inflation in the core CPI measures dropped to just 2% in the Jun quarter and consumers’ year-ahead inflation expectations remain well anchored at 2.4% as at Aug. Consumers see little threat to the RBA’s 2-3% target.

Consumers aren’t the only ones. As Greg McKenna outlines today at Macro Investor, the range of mortgage and term deposit rates is unusually spread at the moment among the banks, suggesting plenty of professional confusion and presenting all sorts of opportunities.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.