Interest rate forecast:
Weaker than expected Gross Domestic Product (GDP) results, hitting levels not seen for over three years, has seen NAB and JP Morgan join Westpac, UBS and AMP in suggesting another interest rate cut to boost the economy.
As shown in the graph below, the December quarter yielded a GDP growth of just 0.2%.
NAB, AMP and Westpac are forecasting two rate cuts by November 2019, with JP Morgan anticipating two cuts by August. The ASX futures market has priced in a full 25 basis-point cut by September this year.
The RBA is showing no signs of movement either up or down just yet, with the cash rate remaining at 150 basis points in February for the 28th consecutive month.
Housing market conditions will likely be the determining factor for a move; if conditions worsen or start to affect more housing markets nationally, we could see one or two rate cuts this year.
As for rates turning right around, Commonwealth Bank anticipates we are unlikely to see a rate hike until late 2020.
What about mortgage rates?
In February, major lenders including Westpac, Macquarie Bank, Citi, Aussie, Suncorp, AMP and ING made out-of-cycle rate cuts and hikes. New and existing variable rates saw the most increases, and a number of fixed rates actually came down.
However, borrowers shouldn’t get too excited. Firstly, even if we do see a rate cut or two, there is a likelihood that lenders won’t pass on the full amount to mortgage owners, with some lenders flagging funding costs due to the ongoing low rates. Hopefully, borrowers will experience at least some relief. Analysts suggest around 25 to 35 basis points out of a possible 50 could be expected.
Secondly, once rates get as low as this, more cuts don’t always have the desired effect of boosting the economy and this may factor into the RBA’s decision.
The availability of credit – or lack thereof – will likely have a more significant influence. Lending restrictions are keeping borrowing capacity down despite the record low rates, and this has a slowing effect on the property market and the economy.
Nevertheless, any movement or speculation of rate movement can affect mortgage rates and the bargaining power of borrowers.