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Interest rates to rise but not for a while: RBA

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Despite optimistic comments that suggest the high Australian dollar is ­increasingly the main impediment to mortgage rates, the Reserve Bank of Australia believes they are more like to rise than fall. 

Speaking in Melbourne at his six-monthly testimony before a key parlia­mentary committee, RBA Governor Philip Lowe said he "didn’t want to dissuade” anybody from the idea that, gradually, "the average level of rates would be higher”. The current market pricing implies a greater probability of a rate rise than a rate reduction. It also implies that the next move in interest rates is a long way out. I think that they are both reasonable assumptions, that the next rate move will be up, rather than down, but it will not be for some time,” he said.

The RBA has held the cash rate at a record low of 1.5 per cent for more than 12 months, but investors have pencilled in one ­interest rate increase with 50 per cent probability before May. Financial regulators were broadly happy with developments in the home lending market, which has remained strong in terms of both price growth in Sydney and Melbourne and lending and building approvals.

"Loan growth of about 6 to 7 per cent is about right, and lending standards have improved,” Mr Lowe said. When asked whether further efforts were needed to slow lending growth, especially to investors. Mr Lowe responded, "we have done enough”. In the past year, the Australian Prudential Regulation Authority has limited the value of new interest-only loans to 30 per cent of banks’ new loans, additional to measures to cap growth of investor loans at 10 per cent.

Mr Lowe then went on to urge the ­government to sort out the nat­ion’s power impasse, which has ­throttled investment in coal and gas power stations and seen ­double-digit electricity price ­increases.

"Some businesses are saying: well, we’re not sure what the ­future price of electricity is so we’ll wait to invest,” Mr Lowe told the committee. "The higher prices are also affecting household budgets, especially those with lower incomes,” he said, foreshadowing a jump in the consumer price index next month. "It would help if we had a strong electricity generation sector. I couldn’t disagree with the proposition that providing certainty about structure would be useful for Australia"

(Source: The Australian, 13 August 2017)

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