RBA makes first cash rate call of the year

In line with expectations, the RBA has held the cash rate at a record low of 0.1 of a percentage point.

"At its meeting on Tuesday, the board decided to maintain the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond, as well as the parameters of the Term Funding Facility," the RBA said.

The board confirmed it will not be increasing the cash rate until 2024 at the earliest.

"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."

According to analysts, the record-low interest rate will send property prices soaring.

Shane Oliver, chief economist at AMP Capital, expects this decision will leave mortgage rates at record lows, which, along with government home buyer incentives and economic recovery, will continue to push average property prices higher.

“Headline inflation will rise due to base effects as the collapse in petrol prices and childcare costs drops out of annual comparisons, but underlying inflation will remain low at around 1.5 per cent or less out to next year.

“This in turn will see the RBA leave rates at 0.1 per cent probably out to end 2022 at least,” Mr Oliver said.

In a document released by the RBA last month, following a Freedom of Information request, the bank predicted that a permanent 1 percentage point (100 basis point reduction) cut in the official rate could increase real housing prices by 30 per cent over three years.

With the RBA clearly alert to the risks from low interest rates, property experts believe the bank’s predictions are fairly accurate.

( Source : Smart Property Investment 2 Feb 2021 )