It is possible that the market may see a two-thirds chance of a rate rise by the end of this year, with the rate having risen by 1 percentage point by the middle of next year.
The outlook for interest rates is moving really quickly, so it is possible that the decision to start raising could come by the end of this year. But many factors need to be considered before a decision is made.
We all know the exceptional circumstances that led the Reserve Bank to set a low this time of 3 per cent. So it should not be hard to appreciate that, at such a low level, the Reserve is feeling rather exposed and a long way from home.
It is always known that what goes down must come back up, and that bringing it back up would not be popular, but that it would be dangerous to keep the rate at such extraordinarily low levels for longer than was absolutely necessary.
But the question is that What could such a low level do that might worry the bank? Well many things can happen but first of all, it may be possible to get an unexpected return to consumer confidence to the point where home buyers, whether first time or subsequent, were leaping in and bidding up house prices on the assumption that the level of rates was the new norm rather than a special offer.
Howsoever, another collapse somewhere in the global financial system cannot be dismissed as highly unlikely. And there’s always the possibility of the news from the US economy deteriorating again. Consumer confidence has slipped for the past two months.
So, yes, the next change in our official interest rate will be up, but there are still questions to be answered and, at this point, the chance of a rise before the end of this year is less than 50 per cent.
