RBA announces that Australia’s interest rates to remain on hold

Following the recent announcement by the Reserve Bank of Australia (RBA), Australia’s cash rate has been left on hold at the historic low level of 0.10%.

In February 2020 Australia’s official cash rate was sitting at 0.75%. The central bank slashed interest rates to 0.10% in November 2020 to ease the potential economic hardship caused by the COVID-19 pandemic. 

RBA Governor Philip Lowe in his monetary statement said Australia’s economic recovery has been “faster than expected”.

“Housing markets have strengthened further, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers. There has also been increased borrowing by investors” Mr. Lowe said. 

“Given the environment of rising house prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”

Shane Oliver from AMP Capital believes slow wage growth is preventing inflation from rising to the point where the cash rate would be raised. “While the economic recovery is faster than expected, the RBA’s conditions for a rate hike are still far from being met,” Mr. Oliver said. 

Since the initial impact of COVID-19 has lessened, the Australian economy has performed much better than most expected, commented Besa Dada, Chief Economist of Westpac Business Bank and Secretary of the Australian Business Economists’ Association. If this trend continues, and there are any shifts in the housing market, she predicts that there’s a risk that rates could be raised before 2024 but not until late 2023 at the earliest. 

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Image: Tierra Mallorca on Unsplash