- The RBA has decided to maintain a cash rate of 0.1%
- Housing prices continue to rise and lending standards remain sound
- Economic recovery is stronger than expected
With inflation remaining low, the Reserve Bank of Australia (perhaps unsurprisingly) decided to maintain a cash rate of 10 basis points (0.1%) at their latest board meeting today.
The RBA does not expect the inflation rate target of 2-3% to be met until 2024 at the earliest. In fact, it is expected that inflation will only be 1.25% over 2021 and 1.50% over 2022.
As previously reported, house prices across Australia have continued to rise, to record levels.
Monetary stimulus has played an important role in ongoing recent housing boom, with lending interest rates at record lows encouraging increasing borrowing and investment.
Housing credit growth to owner-occupiers has risen, although investor and business credit growth remains weak.
RBA Governor, Philip Lowe had previously said the central bank “does not and should not target house prices”, but rather his focus was on lending standards, which he described as “sound”.
With regards to quantitative easing, the RBA has purchased a cumulative $74 billion of government bonds to date, under an initial $100 billion program and is prepared to do more if necessary.
The RBA stated they remain committed to highly supportive monetary conditions. However, they have been scrutinised by the House of Representatives Standing Committee on Economics for maintaining such an easy stance.
Some observers are worried that the booming property market could become a runaway bubble. As previously reported, Dr Lowe does not seem worried, arguing that there have been large rises and falls in the property market over the past few years and that the housing price index is still around the same level as four years ago.
Here are some other key highlights that came from the meeting:
- The economic recovery is stronger than expected (GDP is expected to grow by 3.5% over 2021);
- The unemployment rate is now 6.4%, which was a “welcome decline”;
- Retail spending has been strong; and,
- Most households and businesses that deferred loan repayments have now recommenced repayments.