If the economics team at Westpac Banking Corp (ASX: WBC) are on the money, income investors will have to contend with low interest rates for a lot longer than they may expect.
According to its latest Westpac Weekly, chief economist Bill Evans believes the Reserve Bank will keep the cash rate on hold at 0.25% until at least the end of 2023.
That's more than three and a half years of rates at this record low. And then let's not forget that rate increases are a gradual process. It could therefore be another three and a half after that before rates reach more "normal" levels.
Why will rates remain low?
Westpac expects rates to remain low due to its belief that the unemployment rate and other labour market measures will remain well outside the Reserve Bank's targets for the next few years.
In addition to this, the bank expects inflation to increase at a slow pace, reducing the need for the Reserve Bank to attempt to control it through rate hikes.
Mr Evans commented: "With the Governor indicating that marked progress toward full employment (4.5%) would need to be achieved before the cash rate would be increased our timeline of "not before December 2023" seems quite realistic."
"We also noted that central banks no longer see the need to be as "pre-emptive" as they were in previous cycles with ample evidence that inflation is slow moving precluding the risk that the central bank will find itself well "behind the curve"," he added.
What now for income investors?
A lot can change in the space of three and a half years, so this forecast is far from certain. But I do think Westpac makes some very good points and income investors should brace themselves for years of low rates.
In light of this, I continue to believe the share market would be the best place to earn a passive and reliable income.
The likes of supermarket giant Coles Group Ltd (ASX: COL) and agriculture focused property company Rural Funds Group (ASX: RFF) strike me as being great options. Both companies have strong businesses with solid long term growth prospects.
