hold the line
The RBA has kept the cash rate at 10 basis points since last year. Image supplied.
  • The Reserve Bank has kept the cash rate at 10 basis points - or 0.1%
  • This is despite increased economic activity and job shortages
  • Half of experts surveyed by Finder believe the rate will rise next year

Unsurprisingly, the Reserve Bank of Australia (RBA) announced today it is keeping rates on hold.

This comes at a mixed time for the Australian housing market, where house prices are showing some signs of cooling down – especially in the Sydney market where the auction clearance rate has declined amid record-high auction volumes.

Nonetheless, property prices are still increasing, with lenders and banks already increasing rates out of cycle.

More broadly the economy is bouncing back after prolonged Melbourne and Sydney lockdowns – the September quarter was one of the sharpest declines on record – and job vacancies are on the rise.

However, wages are yet to increase to the level the RBA desires – once this occurs, we will be likely to see a rise in the cash rate from the record low level of 0.1%. This is despite widespread worker shortages and salary wars in the private sectors.

“Job advertisements are at an historically high level and there are reports of firms finding it difficult to hire workers,” said RBA Governor Philip Lowe in his post-meeting statement.

“Wages growth has picked up but, at the aggregate level, has only returned to the relatively low rates prevailing before the pandemic. A further pick-up in wages growth is expected as the labour market tightens.”

Rate rise next year or 2024?

While Dr Lowe has been adamant the rate won’t increase until 2024 at the earliest, sentiment is changing, with Dr Lowe dropping the “until 2024” indicator, now only noting the cash rate would increase when inflation is “sustainability within the 2% to 3% target range.”

A survey of economists conducted by Finder found that almost half (46%) expect a cash rate rise in 2022.

“Only a few months ago, there was little expectation of any movement until 2023. Now half of the experts are predicting a rise next year,” said Finder’s head of consumer research, Graham Cooke.

“Those who think their rate will stay low just because the cash rate is holding would be wise to be prepared for an out-of-cycle hike,” Cooke said.

“Although there is uncertainty around the new Omicron variant – assuming vaccines and boosters are effective for Omicron, the recovery should continue and higher rates should be expected through financial year 22/23,” added David Roberston of Bendigo Bank.

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