Earlier this week, at its first meeting of the year, The Reserve Bank of Australia (RBA) decided to hold its cash rate at 0.1 per cent for the 15 consecutive months, which was last changed in November 2020.
This decision took place despite the growing economic threat from soaring inflation figures and the rising cost of living.
Photograph: Rick Rycroft/AP
The RBA’s governor, Philip Lowe, stressed in the RBA’s media release that the end of the RBA’s quantitative easing programme with bond-buying, record low-interest rates and funding facility to drive down long-term interest rates did not imply that the cash rate would be raised soon.
“Ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates,” Lowe said.
“As the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” he said. “While inflation has picked up, it is too early to conclude that it is sustainably within the target band.”
By the final quarter of 2021, inflation moved up quicker than the RBA had expected of 2 per cent to 3 per cent target “but remains lower than in many other countries”, according to Philip Lowe.
The current inflation rate sits at 2.6 per cent, the highest since mid-2014, which is affected by higher petrol prices, higher prices for newly constructed homes and disruptions to global supply chains.
RBA said that it expects the rate to accelerate to “around 3.25 per cent” in the coming quarters, before declining to around 2¾ per cent over 2023.
Source: The Reserve Bank of Australia
The RBA also reduced its unemployment rate projections to below 4% in 2022 and “around 3.75 per cent” by the end of 2023. This compares to forecasts of 4.25 – 4.5 per cent in 2022 and 4 per cent the following year, according to the banks’ monetary policy statement released in November.
The lowest unemployment rate in 13 years during the December quarter may also nudge wages higher. The RBA’s most recent rate rise was in November 2010.
However, major banks are predicting that it’s only a matter of time before the RBA lifts the cash rate target, with some economists expecting a 0.25% raise before the end of the year.
Source: HSBC Australia
HSBC economist Paul Bloxham said although the Reserve Bank said it wouldn’t rise until 2024, it would definitely go up as soon as this year or early 2023.
According to Westpac, the RBA’s comments were unsurprising, and the Australian dollar fell against the US dollar as a result, from 70.7 US cents to 70.35 US cents just before the announcement.
Regarding the expected timeframe, Westpac and CBA are tipping that the RBA might raise the cash rate around August and the ANZ predicting around September.
The RBA’s cash rate movement can influence the property market significantly. Although the Reserve Bank is clearly signalling that they’re not going to do anything in a hurry, some big commercial banks are already raising their loans rate, according to Domain.
As the property growth slowed down in January on CoreLogic figures – an early indication that housing markets are starting 2022 with a similar trend to 2021, once cash rate hikes in the near future, it could severely affect the property market. As a result, some buyers may try to get into the market before it goes up.
Aussies need to brace themselves as rate rises are coming, Reserve Bank of Australia (RBA) governor Philip Lowe said at the National Press Club.
“One of the things that I think will happen is that interest rates will go up. I can’t tell you when, but they will go up,” Lowe said “ We need to be prepared for that. And people need to have buffers.”
It is also good to keep in mind that the rate won’t increase dramatically overnight, rather gradually by 0.15 to 0.25 per cent each time, so there will be time to adjust.
Follow Liviti News for more updated trends on the Australian property market.