Future Interest Rate Movement For 2014/15

The future direction of interest rates will have a significant bearing on the Australian economy over the next 12 months. Whether or not the Reserve Bank of Australia will leave interest rates at historically low levels will largely depend upon the economic performance of the country’s largest trading partner, China.

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With more than 25% of Australian exports heading to Chinese shores, renewed concerns about China’s construction and property sectors may prove a considerable drain on Australia’s economic forecast. The merest suggestion of a downturn in China would rule out any rate rises in the next year and could lead to further cuts.



The RBA relies on housing data from the Australian Bureau of Statistics and if recent observations are anything to go by, residential property prices in Australia's eight capital cities rose by 10.1% in the year to June 2014.



The RBA has been quick to talk down suggestions of a property bubble in Australia. Should capital growth in residential real estate continue apace, it is likely that the RBA will throw out the anchor as it did in 2010 and increase interest rates by 50 basis points in a single month in order to reign it in.



Inflationary pressures are unlikely to play a major part in the future upward movement of interest rates. Australia’s consumer price index has been tracking below the benchmark 3%, meaning that the RBA will not be required to address inflation as a major issue.



The high value of the Australian Dollar was a major cause of concern for the RBA. Australia was previously home to some of the most generous interest rates globally, attracting a considerable swell of foreign investment into the country.



Recent suggestions that member countries of the European Union or the USA could move towards increasing interest rates led to a wide-scale sell off in the Aussie Dollar. Further rate cuts could well be on the agenda should business confidence fall away and capital growth fade in the housing sector.



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Future Interest Rate Movement For 2014/15