Deloitte says interest rates won't move in 2018

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Inflation is too sleepy to drive interest rate rises in 2018, according to the latest quarterly Business Outlook from Deloitte Access Economics.

“The world is stubbornly slow to reflate, and that is leaving central banks travelling pretty slowly in their quest to lift rates from what, in many places, are still record lows,” says partner Chris Richardson.

“The story’s the same in Australia. That’s good news for property owners, as it says that the Reserve (Bank) won’t be raining on their parade, or their housing prices, any time soon.”

However, it also means accepting rising vulnerability as Australian families take on debt.

“Yet one place where rates are going up is the US,” he says.

“That means there’s no longer any interest rate differential between Australia and Uncle Sam for the first time in two decades.

“That removes one leg of support for the AUD.”

Richardson says a global backdrop of good growth and weak inflation is music to Australian prospects, ensuring a firm floor under export earnings.

“That mix of good global growth with a record low cost of capital saw Australia’s growth pick up pace over the course of 2017, and we should maintain momentum through 2018, continuing a record breaking run of job gains,” he says.

“That’s a pretty good outlook. Yet neither families nor politicians are likely to get much happier unless and until wage growth finally climbs off the floor.”

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