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Rates to stay low for 10 years, says lender

by James Mitchell7 minute read
The Adviser

LaTrobe Financial – sailing against the majority in the industry – believes rates will remain at or near present levels for the next decade.

Speaking at the LaTrobe Financial Q1 2014/2015 investor briefing yesterday, LaTrobe head of funds management Chris Andrews made the bold prediction that interest rate stability would continue for some time to come.

Mr Andrews said the current low interest rate environment is exactly what the Australian economy needed and believed – due to weak global conditions – that rates would rise, if at all, in the foreseeable future.

The comments are at odds with most economists and even the RBA’s predictions that rates would start rising some time in 2015.

“The global economy is so fragile, and with all the pressures of the Australian economy, the RBA’s scope for policy action is most likely now extremely limited,” he said.

“If you look at interest rate movements as far out as the eye can see, even to a decade-long horizon, [they] will be constrained to a 50-basis point band, plus or minus,” Mr Andrews said, believing the cash rate wouldn’t dip lower than two per cent or increase above three per cent.

Mr Andrews admitted that the prediction was a “big call; it does emphasise the lender’s current house view of where the Australian economy is in a global context”.

However, Mr Andrews agreed his prediction didn’t take into account an unforeseen global shock that could frighten world markets and send rates spiralling upwards.

“There are always possibilities that could break this base case, but we have a strong house view here of a long period of interest rate stability,” he said.

[Related: Interest rate hikes on the horizon]

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