“Rates appear to have passed low point,” Bill Evans Westpac Chief Economist
Bill Evans is the Westpac Chief Economist and believes we are finally at the bottom of the interest rate cycle.
He says the money markets appear to be more convinced that we have seen the low point in rates in this cycle for the following reasons…
- The three year swap rate reached a low of 1.59% on 31 August and is now around 1.84%
- The ten year bond rate bottomed out at 1.82% on 2nd August and has now risen to 2.38%
For some time it has been his view that the RBA’s cash rate will remain on hold for the next couple of years. The reason for this is we have passed the low point in the inflation cycle.
It is expected the RBA is unlikely to cut rates further. A sign the interest rate cycle may be turning up can be seen in the fixed-rate home loan market.
These fixed rates reflect the banks’ expectations for interest rates. Westpac and a host of smaller banks have started to lift their fixed rates for new loans.
Importantly, there are deep economic reasons for the RBA to be more reluctant about cutting variable interest rates.
One obvious reason is most households are already carrying plenty of debt. Encouraging even more borrowing “is unlikely to be in the public interest” the RBA said this month. This is a clear signal the RBA is not about to cut rates again
Also, Bill Evans from Westpac is not issuing any dire warnings that interest rates are about to “take off”. Inflation is still very low; the labour market has ample slack; and the world economy is still facing formidable headwinds.