What the US rate rise means for Australia

THE US Federal Reserve has finally hiked rates, but don’t panic.

It’s good news for Australia, and the Reserve Bank isn’t going to rush to raise rates just yet, economists say.

“The resumption of Fed rate hikes is a sign the world’s biggest economy is doing well,” AMP Capital chief economist Dr Shane Oliver wrote. “To the extent that the Fed’s interest rate hike signals a stronger US, it’s good for Australia. It doesn’t signal that the RBA will soon follow and hike next year, though.”

Dr Oliver said with the Australian economy remaining weaker relative to its potential than the US and inflation running below target, his view was that the RBA would be cutting rates further in 2017, not hiking them.

That doesn’t mean Australian homeowners should relax completely. NAB, Westpac, ME Bank and a number of other lenders have already raised rates out of cycle with the RBA, and LJ Hooker chief executive Grant Harrod earlier this month warned of more to come.

At its final meeting for the year, the RBA left the official cash rate on hold at its historic low of 1.5 per cent after two cuts in 2016.

“As we’ve seen with some major lenders, the banks have the full capability to adjust their own lending policies, and we’ll likely see more of that in 2017,” Mr Harrod said.

Mortgage Choice CEO John Flavell, however, said an RBA rate hike was on the cards, and warned Australia’s lenders would continue to raise rates in 2017 against a backdrop of increasing funding costs. Read More Here