Find attached an interesting video segment from ABC’s The Business examining whether or not the RBA will raise interest rates and what impact this would have on household budgets.
The segment features HSBC chief economist, Paul Bloxham, who outlines his case for rate hikes (as articulated earlier in the month), as well as Digital Finance Analytics’ Martin North taking a much more measured (and sensible) approach and also warns that rate rises could cause widespread pain for indebted households.
We still believe that the next move in interest rates is more likely to be down (after staying on hold for a prolonged period) given:
- Commodity prices and the terms-of-trade will likely fall next year, draining national income;
- The dwelling construction boom unwind;
- The energy shock;
- Ongoing weak wages growth (albeit likely a bit stronger than currently due to the FWC minimum wages decision);
- Softening consumption spending (as house price growth softens and the household savings rate stops falling);
- Ongoing weak inflation;
- Ongoing elevated labour market slack (as measured by the labour underutilisation rate); and
- The car industry’s closure.
Sure, there are some offsets in the form of the infrastructure build-out, but not nearly enough to warrant raising interest rates.
That said, I’d be more than happy for the RBA to make an error and raise interest rates – much like it did in the lead-up to the GFC – as this would bring on the correction sooner.
