Waiting for rates to fall? Don’t bank on it, says ANZ CEO
Despite growing sentiment that interest rates might fall in 2024, the major bank boss remains cautious.
Interest rates have been rising steadily since May 2022 but if you listen to economist chatter, there are glimpses of the light at the end of the tunnel.
For several months the idea that rates would fall was pushed to the back of mind, as the Reserve Bank of Australia (RBA) went on the attack to bring down inflation by increasing the cash rate 13 times over 18 months.
But now, economists are not only saying we're nearing the peak of the interest rate rises, they're speculating on when interest rates might actually fall.
Future of cash rate remains uncertain
69% of the panel of economists that Finder surveys each month believe interest rates will peak by March 2024.
Before the latest cash rate rise, 46% said they thought the rate would peak at 4.35% (which is where we're at now, by the way).
But then what? Will interest rates immediately begin to fall? Probably not, no. But some economists have suggested they could start falling towards the end of 2024.
Discussing interest rates in a live-streamed interview with LinkedIn, ANZ Bank CEO Shayne Elliott said he believed the interest rate rises were working.
"[The rates are] slowing things down and we can see it in spending data… generally people are changing their spending behaviour," he said, going on to say that young people in particular were dialling back their spending.
As to where rates go next, Elliott touched on that too.
"We would expect that we're somewhere near the top of the interest rate cycle. Maybe there's another interest rate rise in the next 3 to 6 months, but we're in the top of the cycle," said Elliott.
"People are split on whether we stay at this level for longer [or whether] rates might fall. We're in the camp of rates might fall this time next year. I personally feel that's a little optimistic."
Demand for housing likely to continue
Despite the rising cost of living, demand for housing continues and this is what is pushing up house prices Elliott continued. He doesn't see that going away in the near future.
"There's just more demand for housing than we can keep up with. Population has grown, there are more people in the country and more people need somewhere to live," he said.
"Because people have jobs and pay is rising, and because people are still sitting on a reasonable amount from over Covid, people can get out into the housing market. So we see buying staying pretty robust because we don't see these changing any time soon."
With it being so tough for people wanting to purchase a property, Elliott believes that borrowing for a home loan is becoming the "preserve of the rich". Responsible lending laws mean banks have to consider whether a borrower can not only repay at the interest rate but also 3% above that.
But for those already in a home, he thinks they're much better off.
"People with home loans are doing ok, they're better off, their pay is rising," he said. "But there's this generation of people getting locked out. They're younger, they have less secure employment, they've not got the savings."
If you are struggling with your home loan debt, it might be time to refinance.