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Next interest rate move: Up… in 2015

According to Business Insider, ANZ’s (ASX: ANZ) chief economist, Ivan Colhoun, believes interest rates aren’t likely to change until 2015 and when they do, it’ll be up.

ANZ sees growth in Australia at 3.1% in 2014, 3.4% in 2015 and 4.4% in 2016. The growth will be pushed largely by exports “while the domestic growth engine is still spluttering”. As a result interest rates will be forced to go higher in the medium term.

However interest rates won’t be the only thing going higher in 2015, according the country’s fourth biggest bank. Unemployment will hold steady between 5.75% and 6% next year which will allow further stimulation of the economy but could rise in 2015.

Earlier this month Mr Colhoun said, “The stabilisation in job advertising in September is consistent with other indicators of an improvement in consumer and business confidence in the weeks leading up to and immediately following the September federal election.”

A rise in confidence will be needed to stimulate the type of growth ANZ is forecasting in coming years. Yesterday, NAB’s (ASX: NAB) quarterly business survey for September showed business confidence hit a two-year high thanks to a lower AUD, interest rates and stronger asset markets.

ANZ predicts that the continued growth will put upwards pressure on monetary policy in 2015 and 2016, raising the cash rate to around 4.00%. The Reserve Bank of Australia (RBA) could however be forced to lower rates again in the near further because of a strengthening AUD (thanks largely to the US debt fiasco) and a sluggish growth transition  from mining to non-resource sectors.

Foolish takeaway

Investors who believe interest rates could drop further would likely be positioning themselves in high yielding investments such as stocks. If confidence continues to rise and interest rates do fall further then don’t be surprised if these stocks go higher in the short term. However, for share market investors believing interest rates will remain as they are, stocks highly leveraged to growth are likely to benefit as more money trickles away from blue chips into smaller companies.

Shareholders in The Motley Fool’s number one dividend stock will be eagerly awaiting a rise in confidence. Want to find out what it is? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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