philip lowe rba
RBA Governor, Philip Lowe. Source: RBA website.
  • The rate remains at10 basis points - or 0.1%
  • Inflation has picked up yet below the RBA' target
  • Two property leaders say the announcement should relieve "hysteria" surrounding a rate rise

As expected, the Reserve Bank of Australia (RBA) today they will keep the cash rate target on hold at the record low level of 0.1%.

The central bank also announced its final bond purchases will occur on 10 February.

While acknowledging the Omicron outbreak has affected the Australian economy, it has not “derailed” the recovery. The RBA still expects GDP growth of 4.25% this year, and 2% over 2023. By comparison, the RBA’s target for economic growth is 3-4% per annum.

Household and business balance sheet remained in good shape, with a significant upswing in business investment and large pipeline of construction work. Unemployment is low at 4.2% – below 5%, which economists generally agree is the natural rate of unemployment.

In his post-meeting statement, RBA Governor Dr Philip Lowe acknowledge that while inflation had “picked up more quickly than the RBA had expected”, it remains lower than many other developed countries.

Higher petrol prices and that for newly constructed homes intertwined with ongoing supply chain disruptions have all fuelled inflation recently.

Housing prices have risen strongly, although the rate of increase has eased in some cities,” said Dr Lowe.

“With interest rates at historically low levels, it is important that lending standards are maintained and that borrowers have adequate buffers.”

Despite this, the RBA remains adamant it will not raise interest rates until inflation is comfortably within the 2% to 3% target range, which would need to see wages pick up – something that remained stagnant for much of the last decade.

The pandemic, however, is the main source of uncertainty for the RBA.

Announcement should dampen rate rise predictions, says two experts

Dr Andrew is a leading independent property market economist. Image – Twitter

Dr Andrew Wilson of Bluestone Home Loan commented on todays announcement, noting the announcement should stop speculation the cash rate will rise in the short term.

“The RBA maintains that rates will not rise until inflation is sustainably within its target range and that more importantly, current stagnant wages growth picks up to a rate consistent with RBA targets,” he said.

“The Bank again reiterates that higher, sustained wages growth is likely to take some time and that it is prepared to be patient awaiting the outcomes of inflation factors.

“Will yet another clear forward direction from the RBA dampen the recent widespread hysteria regarding a near-term rise in official interest rates?”

Geoff Lucas of The Agency (ASX: AU1) added that while financial markets have factored in a rate rise between May and August, todays announcement signals that this action may be premature.

“I strongly believe interest rates will remain at current levels for longer than the market is pricing in,” said Mr Lucas.

geoff lucas
Geoff Lucas of The Agency. Image Supplied.

“People believe an interest rate rise is coming, which is having a healthy effect on property prices – and assisting bringing the market toward an equilibrium between buyers and sellers.

“The RBA has done a pretty good job in managing forward over the past couple of years in extenuating circumstances.

“I’d expect the RBA is keen to see a steady demand driven inflation out of the Omicron outbreak, keeping any property boom in check however guiding a healthy recovery, especially with the prospect of further outbreaks – an early increase in rates may thwart a steady strengthening recovery.

“So the prospect of an interest rate increase before August is highly unlikely and these other factors will need to be assessed to determine if anything at August is required. I’d suggest very late this year if anything otherwise we’d be looking at 2023.

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