‘Trump effect’ could prompt rate rise, says analyst

Principal of Digital Finance Analytics (DFA) Martin North believes that tax policy changes in the US could have a “flow-on” effect, leading him to prompt Australian regulators to increase rates.

“There’s a possibility that rates could go up later in the year, either from the RBA or from international financing,” Mr North said.

“That’s perhaps the Trump effect, because effectively you’ve got the tax cuts in the US, you’ve got interest rates going up in the US, that’s going to have a flow-on effect elsewhere.”

Speaking to The Adviser, Mr North commented on a data analysis released by DFA, which reported that over 921,000 (27.9 per cent) of households are under “mortgage stress”.

The data analyst predicted that despite increased mortgage stress and a continually high level of household debt, the RBA will likely increase rates in 2018.

“The RBA [has] a really tricky situation because we’ve got mortgage lending growing at three times income growth — 6 per cent annual mortgage growth lending and 2 per cent income growth — so, that’s an unsustainable position,” Mr North said.

“If they do lift rates, essentially that’s going to put more households under pressure.

“[But] my own view is that the next rate will be up, [and] it won’t be for some months — probably in the second half of 2018 —and I think it’s predicated on what happens to wages.

“I can’t see any logic for driving rates lower, and the challenge is that they should be putting rates higher than they probably will because of the problem with debt overhanging in the system we’ve got at the moment.”

Mr North also warned that households could be at risk if such rate hikes were too occur. He encouraged Australians to begin budgeting.

“Households need to be quite careful about how they spend what they’ve got, and a lot of households don’t have any budgets — only half of household have any formal budgeting — so, it’s [good] to have a clear idea of what your income is and what your expenditure is so you can manage it.”

[Related: Lending trends in 2018]