RBA says no to Christmas cash rate cut

After last month’s highly anticipated rate cut, the Reserve Bank has held the cash rate at 0.10% in December, as was expected.

Today’s board meeting saw the cash rate remain unchanged, which was pretty much the universally expected outcome after the Reserve Bank said last month it would be leaving the cash rate unchanged for several years.

“With the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero, interest rates have been lowered as far as it makes sense to do so in the current environment,” it said.

“The Board considers that there is little to be gained from short-term interest rates moving into negative territory and continues to view a negative policy rate as extraordinarily unlikely.”

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Last month was quite different however, as Governor Philip Lowe said a rate cut then made sense as the economy began to reopen post-pandemic restrictions.

“Given the outlook for both employment and inflation, monetary and fiscal support will be required for some time. For its part, the Board will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range,” Dr Lowe said.

“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.

Governor Lowe also noted that Australia’s economic recovery is underway, and has generally been better than expected (something that Commonwealth Bank agrees with).

He also said that the Bank’s policy response in lowering interest rates would assist a further recovery by lowering finance costs for borrowers.

“The Term Funding Facility is also supporting the supply of credit to businesses. To date, authorised deposit-taking institutions have drawn down $84 billion under this facility and have access to a further $105 billion,” he said.

“The Board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation. The Board is prepared to do more if necessary.

Very few lenders passed on the RBA’s November cut to variable rates, with many instead offering sub-2% fixed rates, causing Dr Lowe to urge borrowers to switch lenders if this was the case.

RBA in ‘wait and see’ mode

CoreLogic Head of Research Tim Lawless said the Reserve Bank most indicators are pointing towards a faster than expected recovery, mainly thanks to record low interest rates combined with record levels of fiscal support, as well as containing the virus successfully compared to other countries.

“With interest rates set to remain at these record lows for an extended period of time, attention is already focussing on how to manage associated risks of an ‘over-heated’ housing e time allowing the economy to benefit from the stimulus.

“No doubt regulators and policy makers will be watchful for excessive exuberance in the housing sector; higher household debt levels or a rise in riskier types of lending could trigger a regulatory response.”

“There is a lot of urgency among buyers in the market https://www.paydayloansohio.net/cities/apple-creek/ right now, particularly in the nation’s capital cities,” Ms Mitchell said.

“The latest decision from the RBA means Australians can continue to take advantage of historically low home loan interest rates well into the New Year.

“If you’re a first time buyer or a prospective investor hoping to get your foot on the property ladder in 2021, now is a great time to talk to your broker about how you can put your best foot forward.”