Rates tipped to start rising in 2015, but how long will the cycle continue?

Rates tipped to start rising in 2015, but how long will the cycle continue?

All 33 experts and economists in Finder’s Reserve Bank Survery have tipped the Reserve Bank to keep rates at a record low of 2.5% tomorrow.

However, a lacklustre economy, high unemployment, the Australian dollar, global uncertainty in the Middle East and Europe, house price pressure and inflation on target, makes it likely that rate hikes will begin in 2015.

Melbourne Cup day has traditionally been a day of cash rate movements – with nine changes on this day in the past 20 years.

Of those surveyed by Finder, 91% are expecting rises in 2015. Two expect rises in 2016.

The general expectation is for rates increases to start increasing in August 2015 before coming to an easing cycle two to three years later.

Finder’s money expert Michelle Hutchison said that rate rises won’t last for long when they do occur.

“Our economy is under pressure to perform better, and all 33 experts in the Finder Reserve Bank Survey believe that the cash rate won’t rise for very long before it will start to fall again,” she said.

“The survey found that the cash rate is likely to peak at 4% in 2017 according to the average forecast.”

However, expectations about when the next interest rate cycle will peak varied significantly– certainly a tough ask this early on.

The majority, 60%, expected the next peak to be in 2017, while a further 27% expected 2016 would mark the peak. A further 13% tipped the top of the next rate cycle to be in 2018.

“One expert – David de Ferranti, Market Analyst at Forex Capital Markets – is forecasting the highest peak, with the cash rate to hit 5.5%. One in three (33%) are expecting the cash rate to hit 4.5% to 5%, a further one in three (33%) expect the peak to hit 4% to 4.25% while the remaining 30% are expecting a peak of between 2.75% and 3.75%,” she said.

“It’s also clear that most experts believe the cash rate won’t hit the high levels we’ve seen in the past. And regardless of when the peak will be reached, it’s likely to start falling soon after.”

Almost 50% of the respondents suggested rate drops in 2018.

“This is great news for borrowers or those planning to enter the property market this mortgage season, as they can prepare for around two years of rising interest rates before they will likely come down again,” she said.

“Borrowers need a buffer of at least $300 per month for an average $300,000 loan if the cash rate hits 4%.”

This story originally appeared on Property Observer.

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