Chart of the week: Australia’s waiting game on interest rates

August 13, 2018
Chart of the week: Australia’s waiting game on interest rates

10 August 2018

Bob Cunneen, Senior Economist and Portfolio Specialist

                                 Australian interest rates

                       Source: Reserve Bank of Australia’s statistical tables F1 and F2.

Australia’s Reserve Bank of Australia (RBA) celebrated a second birthday for monetary policy this week. Australia’s key cash interest rate (blue line) has been held steady at 1.5% for the past two years.

This is a remarkably stable interest rate considering the twists and turns of the Australian economy over recent years. Essentially the RBA has held interest rates steady given competing forces confronting the economy. The mining investment downturn and sedate retail spending have made a case for lower interest rates. Conversely the Sydney and Melbourne housing price booms, infrastructure surge and stronger jobs growth have argued for higher interest rates.

Australia’s government bond market seems to be pricing higher interest rates over coming years. The two-year government bond yield has risen above 2% this year (red line). Given that this two-year government bond yield has typically led movements in interest rates over the past decade, this implies the RBA is set to raise interest rates. So from the bond markets perspective, the RBA is merely playing a ‘waiting game’ until the case for raising Australia’s cash interest rate becomes compelling.

 Source : Nab assestmanagement August 2018 

Important Information

This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (“NAB Group”), 105–153 Miller Street, North Sydney 2060. An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information in this communication may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. MLC believes that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Past performance is not a reliable indicator of future performance. This information is directed to and prepared for Australian residents only. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.

Powered by WPeMatico