Low interest rates will be the new norm

Adam Smith 16 June 2016

graph down percentLow interest rates may be the new norm, with a chance the RBA could trim the official cash rate again before the end of the year.

1300HomeLoan managing director John Kolenda has predicted that the current low cash rate of 1.75% will be the “new norm” as consumers are now more sensitive to the impact of higher rates.

“We are unlikely to see official interest rates move to pre global financial crisis (GFC) levels and the standard norm of the future will be lower than historical levels for the next decade,” Kolenda said.

Kolenda argued that the official cash rate was no longer necessarily an effective tool for managing the economy.

“The monetary policy game has changed and the RBA has found cutting its cash rate is not necessarily an instant remedy for economic stimulus,” he said.

But Kolenda said any rate rises could have dramatic impacts on the economy and consumer confidence.

“Consumers are now very rate sensitive and when they rise they are likely to stop spending and revert to saving,” Kolenda said.

Kolenda said rates were unlikely to return to their pre-GFC levels, and that the RBA could cut the official cash rate again in the short term.

See our experts' cash rate predictions

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