The cash rate didn't change at the Reserve meeting on Tuesday.   Banks make billions in profit, apparently more when interest rates are low.   So, what will happen next?

Text books say that a neutral interest rate setting is when the yield curve is at 0.05% (when long term rates are higher than short term rates).   When the official rate is above this difference, interest rates are likely to rise, and when below, the cash rate is likely to remain stable or even fall.

A Yield Curve plotted for short term (2 year bond rate minus the 90 day bill rate), medium (5 year outlook), and long term is very interesting (no, I don't get out much).   The only one I could find is Copyright, so I can't include it here.

However, what it shows is that long term rates may be about to rise.   The official explanation is that trade balances, various crises, government support for the economy, etc., are inflationary.   I don't quite get it, but there it is.   ( PS :   I also don't understand that if debt is bad for an economy, how more debt is good).   But, read on!

The medium term view is subdued, largely falling just below the 0.5% level, and suggests there should be little change in these official rates.   Any rise could therefore be minimal.

Short term rates though suggest steady rates and very possibly a reduction in official rates.   I say 'official' rates, which are set by the RBA, the banks set their own rates based on the cost of capital.

Impinging on RBA thinking are factors such as inflation (still below the preferred 2% to 3% target range), low wage growth, low employment growth (part time and casual is becoming the norm, and they say they are not getting enough hours anyway), high personal debt levels, and concerns about 'the economy' (low savings, risk in investment, and frequent changes to superannuation).   I think you could also add no faith in the political parties to be responsible or achieve anything (apart from spend more money that they don't have on dreams which they hope will keep them elected).   Perhaps a tad cynical?

I read a quote recently by a respected commentator, who sums this up as under:

"Debt is consumption brought forward.   Growth is the assumption that consumption will continue to increase.   So, something has to give (to keep the treadmill going), and for me that will be interest rates".

So, what to make of this?   The economy could become far more challenging next year and with no high growth sector to lead it out of a possible recession, interest rates may need to be reduced for stimulation (whatever turns you on!), probably resulting in a resurgence in the building sector from 2020 through to say 2025.   If interest rates are reduced early next year, a sharp downturn may even be avoided, (and don't forget there's a federal election in 2019).