There is little chance the Reserve Bank of Australia will hike interest rates in the next six months, even though property prices are at record highs in some markets, according to AMP Capital Head of Investment Strategy and Chief Economist Shane Oliver.
“I can understand why people think maybe they should,” says Oliver. “But I think it’s a 2018 story, not until probably late in 2018 before the Reserve Bank starts raising rates.”
The reason he predicts rates will stay on hold is simple. The background economic data is just not strong enough.
“We’ve still got pretty sub-par economic growth, we’ve got high levels of under employment, we’ve got inflation below target, we’ve got record low wages growth,” says Oliver. “More recently we’ve seen this break higher in the Australian dollar and that will act as a constraint on Australian growth and also on inflation.”
The Australian dollar has spiked above US80 cents in recent weeks, for the first time since 2015. A hike in interest rates would add further pressure to the upward momentum of the dollar and further dampen demand economic growth.
The economic story is a big factor, says Oliver, in why the Australian share market has been under-performing against international equities.
“Global shares had a good run through the June quarter, and so far in the September quarter that has continued,” he says. “The global economy has been improving, there’s been very low interest rates, monetary policy remains very stimulatory, and that combination is resulting in higher profits whether you look at the US, Europe, Japan, even in the emerging world you are seeing profits rising.”
By contrast the Australian share market has been a bit of a laggard. However, Oliver predicts the broad rising trend in Australian shares to resume.
“On a six to 12 month view I do see the Australian share market rising,” Oliver says. There are several reasons. The global backdrop will be reasonably positive, global growth is on the mend and that’s helping profits, which should flow through to the Australian share market.”
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.