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How to predict whether the RBA will cut rates

How to predict whether the RBA will cut rates

If you’re wondering where interest rates are headed in 2017, you’re not the only one: mortgage holders across Australia are grappling with the same conundrum.

It’s unclear whether borrowers should fix while interest rates still have a 4 in front of them, or take a punt on the variable market, which could stay flat, drop lower, or start to inch upwards. With banks starting to increase rates without an RBA rate rise, borrowers are unsure what will happen next.

According to new research by industry super fund-owned bank ME, the potential of lower interest rates is quite high.

They said low income growth and low job availability, combined with high levels of job insecurity and underemployment, mean that the RBA may still decide to cut official rates later in 2017.

The latest labour market data is contained in ME’s eleventh Household Financial Comfort Report, which found:

  • A record low 32% of households reported ‘income gains’ over the past year, down from 38% 12 months ago.
  • A record high 34% of households reported ‘job insecurity’ – an increase of 9% when compared to the year to December 2016.
  • More than half of respondents (a record high 56% of households) felt that they would ‘struggle to find a new job within two months if they became unemployed’. This is an increase of 3 points over the past year.
  • Only 37% said it would be ‘easy to find a job within two months if they became unemployed’, down 3% in the past 12 months.

ME said that their latest survey of households show the Australian economy continues to exhibit a number of cyclical and structural challenges, which could prompt further official rate cuts in 2017.

Of course, even if the banks do cut rates, there’s no guarantee that lenders will pass those savings on.

And without a crystal ball, it’s impossible to know where interest rates are head – which mean borrowers need to act in their own best interests. That may mean fixing your rates now for security, or keeping your rates variable for flexibility, but only you can decide the best course of action for yourself.