RBA frozen for fourth month in succession

by Mike Wood02 Mar 2021

The Reserve Bank of Australia has continued the trend of record low interest rates by announcing that the cash rate will be held at 0.1%.

March 2021 is the fourth month in a row where the price has been held, despite some speculation that it might be raised in the wake of record increases in property prices and home loans.

“Lending rates for most borrowers are at record lows and housing prices across Australia have increased recently,” read the statement released this afternoon. “Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak. Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates.”

“The Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved. The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

The wording of the statement was strong, though some analysts still think that the stated three-year-plan will be brought forwards.

“It is appearing more likely that we will see a rise in interest rates before the predicted 2024 forecast as pressure mounts on global funding costs,” said Finsure Managing Director John Kolenda.

“The Australian dollar’s continued upward movement also has many questioning the RBA’s 2024 prediction.  Economic results over the next two quarters will provide greater clarity on when interest rates will rise, with markets predicting something could happen over the coming 12 months.”

Australia’s response to the pandemic has been strong in the property market, but that has not necessarily been shared across other sectors of the economy.

“This pandemic event is unlike any other in history and this is evidenced by the disparity in economic results across various industries,” said Mr Kolenda.

“Much depends on the impact of the vaccine rollout and the return of pre-COVID travel in Australia. Should there be signs and positive economic results across the travel and airline industries then we are certain to see rates rises following.

“The challenge ahead will be managing the road to recovery and the imbalances.”