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BILL’S BITES: Rising bond rates, the RBA and $A

01:59pm February 24 2021

Westpac chief economist Bill Evans discusses the outlook for rates and the Australian dollar. (Josh Wall)

Bond rates are jumping quite quickly at the moment. Only a few months ago, the Australian 10-year bond rate was at 1 per cent.

We're expecting it to get to 1.9 per cent by the end of the year – and it's moving quickly in that direction.

Does that mean that the Reserve Bank is going to be raising interest rates now?

The answer is no.

Bond rates are reflecting long term inflation risks and the long term growth recovery that we're going to see around the world, whereas the RBA is looking at inflation and wages growth as it is today. And that, of course, is very, very weak.

So, we still believe that the RBA will keep rates on hold for three years or so.

That's very important because we've also released an important report on the outlook for housing.

While the RBA keeps interest rates as low as they are at the moment, that means mortgage rates hold at record lows. We expect that to continue for the next couple of years. 


The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.
 

William (Bill) Evans is Westpac’s economic spokesman and is responsible for all of our economic research. In 1991, Bill joined Westpac as the Chief Economist and Head of Research. A graduate of Sydney University (BEc. Hons I and University Medal) and the London School of Economics (M. Sc.), Bill has worked as Research Manager for the Reserve Bank of Australia and as a Treasurer at the Commonwealth Bank of Australia. Bill travels frequently, advising Westpac’s customers on the Australian economy and financial markets.

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