- Comes as it is rare for the RBA to change rates on Melbourne Cup day
- Headline inflation - or CPI - is currently at 3%
- RBA assertive rates won't rise for several years
In its monthly policy decision meeting, the Reserve Bank of Australia (RBA) decided to maintain the 0.1% cash rate target despite inflation now at 3% – the maximum of its target.
This is the twelfth month the RBA has kept the rate at the record low level, and is despite the rise in many home loan rates.
It may not be a surprise given that since 1990, the Reserve Bank has only altered the cash rate ten times during a November meeting – possibly, in part, due to falling on the same day as the Melbourne Cup.
The central bank noted that the Australian economy is recovering following the Delta-fuelled disruption, with a rise in both number of hours worked and job advertisements.
The RBA assumes unemployment will remain low over the next few years, at 4.25% next year and 4% at the end of 2023.
Assuming no setback on the health front, the RBA is forecasting GDP growth of 3% in 2021, 5.5% in 2022 and 2.5% in 2023.
In a statement, the RBA acknowledged inflation has picked up. The headline consumer price index (CPI) is 3%, being driven by higher petrol prices, rising costs of new homes and disruptions in supply chains internationally.
While headline inflation is at the top end of the RBA’s target, underlying inflation is at 2.1%.
As the labour market tightens, wages growth is expected to increase, which may lift inflation. The RBA does acknowledge the behaviour of wages and global supply chain disruptions are the main uncertainties as the economy enduring a low unemployment rate.
In terms of the housing market, the central bank notes house prices are continuing to rise with credit growth rising for both owner occupiers and investors
“The Bank welcomes APRA’s recent decision to increase the interest rate serviceability buffer on home loans,” said Dr Lowe.
“It is important that lending standards are maintained at a time of historically low interest rates.”
Phillip Lowe, RBA Governor
He reiterated that the rate will not rise until actual inflation is comfortably within the 2% to 3% range, with his forecast suggesting underlying inflation will not be higher than 2.5% at the end of 2023. Unlike past statements, there was no direct mention of rates not rising until 2024.
The RBA has – yet again – confirmed its position regarding future movements in official interest rates, quickly deflating recent rampant speculation that rates would rise sooner than it has consistently projected over the past year.
Speculation quieter – for now
Dr Andrew Wilson, an economist consultant for Bluestone Home Loans, said today’s decision reinforced the RBA’s position and had quickly deflated speculation the rate may rise sooner than its projections.
“Although underlying inflation surged over the September quarter, the key components of the increase were clearly related to the covid constraints of the past year and are likely to dissipate as economies normalise in a post lockdown, fully vaccinated environment,” commented Dr Wilson.
“The RBA has reiterated that official interest rates are unlikely to rise before 2024 with its key concerns surrounding stubbornly low incomes growth and an economy still clearly with work to do in recovering from recent severe lockdowns.
“The sobering prospect of real wages growth falling over the September quarter will only harden the resolve of the RBA and quieten higher rate speculation – for now.”
