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Interest Rate on Hold Indefinately

An Australian Financial Institution has forecasted that the official cash rate will not move by more than 50 basis points for the next 10 years. Speaking at the La Trobe Financial Q1 2014/2015 investor briefing this week, La Trobe head of funds management Chris Andrews made the bold prediction that interest rate stability would continue into the foreseeable future.

Mr Andrews said the current low interest rate environment is “without a doubt” a tailwind for the Australian economy.

In his October rate announcement, RBA governor Glenn Stevens flagged continued accommodative monetary policy over a long period of time, suggesting that rates would remain unchanged for some time.

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

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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.

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