RBA leaves cash rate on hold at 0.10% again in May

author-avatar By on May 04, 2021
RBA leaves cash rate on hold at 0.10% again in May

At its May board meeting today, the Reserve Bank has left the cash rate on hold at 10 basis points once again.

In what has become a bit of a copy paste job of late, the cash rate has been the same since November 2020 when the Reserve Bank (RBA) made a 'Melbourne Cup cash rate cut' to a historic low of 0.10%. 

In his statement on monetary policy (SOMP), RBA Governor Dr Philip Lowe pointed to lagging inflation and slow wages growth as reasons for keeping things unchanged.

"Despite the strong recovery in economic activity, the recent CPI [consumer price index] data confirmed that inflation pressures remain subdued in most parts of the Australian economy," he said.

"A pick-up in inflation and wages growth is expected, but it is likely to be only gradual and modest."

Dr Lowe said the Bank expects inflation to be 1.5% in 2021, and 2% in mid-2023; the Bank has repeatedly said it wants inflation to be 'comfortably' within the 2-3% range before it considers raising the cash rate.

According to Westpac's Rate Strategy team, the RBA is more preoccupied with more exotic policies such as yield curve control (YCC), which is a function of central banks buying Government bonds to keep their bond yield under control.

"We expect that their labour market numbers will not be sufficiently improved relative to their full employment assessment to give them confidence that an April 2024 hike is possible," the team said in a report issued yesterday.

The Rates Strategy team predicted a 10% probability on the RBA "hinting" at dropping its 2024 guidance, and just 5% probability on explicitly dropping it. 

'No return' to higher risk lending

At a speech delivered to the mutual banking sector today, Australian Prudential Regulation Authority (APRA) deputy chair John Lonsdale said there was not yet a return to higher risk mortgage lending.

"We are not seeing a return to higher risk lending, particularly in areas where we have intervened in the past such as investor and interest-only loans. However, it is important that standards are maintained, monitored and tested," he said.

Lending data released today for March shows a 'record high' in new loans written, up 5.5% over the month to $30.2 billion.

Investment lending led the surge, up 12.7% to $7.8 billion, accounting for more than half of the month's gains.

However, lending to first home buyers has cooled off for the second consecutive month, with loan commitments falling 3.1% in March, after February's 3.3% drop.

CoreLogic's dwelling values data also shows values are up 6.8% on the quarter to nearly $625,000 across Australia.

In the capital cities it's more than $705,000, while in the region's it's nearly $456,000.

This is on top of Australian Bureau of Statistics data that shows the mean price of residential dwellings to December 2020 was $728,500. 

As has been a steady fixture in the SOMP lately, Dr Lowe said the RBA is "monitoring trends" in housing closely.

"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," he said.

"Given the environment of rising housing prices and low interest rates ... it is important that lending standards are maintained."


Photo by Jordan Whitt on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
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Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

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*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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