Cash rate holds again as lending controls are set to kick in

by Mike Wood05 Oct 2021

The cash rate has been held at 0.1% again as the Reserve Bank of Australia (RBA) continues to keep interest rates low to stimulate growth.

The RBA has insisted for months that the rate would not budge until 2024 at the earliest, and while that was disputed by some banks in the earlier stages of this year, the recent lockdowns in New South Wales and Victoria have shifted thinking back into line.

While the cash rate has remained, the Treasurer Josh Frydenberg has taken other measures to constrain the huge growth in house prices in Australia by instructing APRA to implement tougher lending conditions on banks and non-banks.

High LVRs and riskier lending are now likely to be scaled back in an attempt to get ahead of the property bubble and avert any burst.

“The global economy is recovering from the COVID-19 pandemic faster than expected with Europe and the United States seeing inflation rising at significant levels,” said John Kolenda, managing director aggregator Finsure.

Read more: What changes are APRA making to lending rules?

“While the RBA as part of the Council of Financial Regulators has its eye on the sky-high property market in Australia, potential inflationary pressures in the post-pandemic world could prompt a rethink on whether it needs to lift the cash rate from its present record low of 0.10 per cent.

“If the RBA moved earlier than expected with its first interest rate rise in more than a decade that would certainly have an impact on the housing market.”

“While it may be prudent for regulators to take some heat out of the property market, they will need to be careful not to pour on too much cold water.”

“With the number of COVID vaccinations approaching the targets being set for the easing of lockdowns, we should be seeing a strong recovery in certain sectors of the economy.

“However, the road to economic recovery is a bumpy one and could become more hazardous if regulators take the wrong direction or go too hard.”