Next RBA rate hike will shock

Reserve Bank of Australia (RBA) Governor Philip Lowe has signalled that the next shift in the official cash rate will be up, not down, and will come as a shock to many households.

However, the rate hike will only come once economic growth improves and wages increase.

Australian households haven’t seen an interest rate rise in seven years, so any rise in the cash rate may initially be upsetting to home owners paying off a mortgage.

“The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people,” said Dr Lowe.

“But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening, and income growth is also picking up.”

Older home-owning Australians who rely on interest feeding ‘accumulation’ super funds for income will gladly receive the rate rise if their investments also increase the interest they pay in line with any lifting of the cash rate. Those with defined benefit superannuation funds will hardly be affected.

Speaking on Wednesday in Perth at the Australia Israel Chamber of Commerce, Dr Lowe said that while economic growth and employment is improving in Australia, there still may be dark times on the economic horizon.

One such portent would be a trade war that would “put the health of the global economy at risk and damage the Australian economy”, China’s efforts to avoid a financial system crash, and high levels of Australian household debt, which “remains a source of vulnerability”.

The official cash rate has remained stagnant at 1.5 per cent since August 2016, and there’s little chance of a rate hike before 2019, with many saying we won’t see a change until 2020.

Read more at www.afr.com

Will you be glad to see the cash rate rise? How will it impact your retirement?

Related articles:
Low rates may ruin retirement
How to cope when rates rise
Bank cuts to hit older Australians

All content on the YourLifeChoices’ website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care, but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness with regard to your circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Financial comments provided by readers cannot be relied on as professional advice, but as general comments only.

Written by Leon Della Bosca

Leon Della Bosca has worked in publishing and media in one form or another for around 25 years. He's a voracious reader, word spinner and art, writing, design, painting, drawing, travel and photography enthusiast. You'll often find him roaming through galleries or exploring the streets of his beloved Melbourne and surrounding suburbs, sketchpad or notebook in hand, smiling.
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