RBA leaves cash rate on hold at 0.10% in March

author-avatar By on March 02, 2021
RBA leaves cash rate on hold at 0.10% in March

At its meeting today, the Reserve Bank has left the cash rate on hold at 0.10%.

This was widely in-line with market expectations, with the Reserve Bank (RBA) reticent to raise the cash rate until inflation and wage growth are 'sustainably' at 2-3%, even though wage growth has not been above 3% in more than eight years.

However, in the Sydney Morning Herald and The Age's 'SCOPE' survey of 23 of the nation's leading economists, two believe there could be a rate rise as soon as late 2022.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you.

In his statement today, RBA Governor Dr Philip Lowe said the low rates are helping boost the economy.

"The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. For this to occur, wages growth will have to be materially higher than it is currently," he said.

"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."

House prices and low interest rates

The topic on everyday Australians' lips recently has been house prices, which in February recorded their strongest performance in 17 years.

Mortgage sizes too continue to grow, growing by more than $4,000 in just a month, now at an average of $481,790 for owner occupiers.

Mortgage Choice CEO Susan Mitchell said there is a 'fear of missing out' sentiment permeating the housing market.

“Customers are taking advantage of extra sharp fixed rates in the market with almost half of [our] home loan applications in February including a fixed portion of the mortgage," she said.

"Despite no change to the cash rate today, my advice to borrowers remains the same. Speak to an experienced mortgage broker to see if you’re still getting a good deal on your home loan."

However, AMP chief economist Shane Oliver said low rates pose "mid-to-long term risks for the housing market".

"The RBA is fixated on generating inflation in the economy, which could take some time, but by 2023 rate hikes could again be on the table," he said.

"Even if they remain low by historical standards, any rise will represent a deterioration in current conditions and is likely to affect affordability. If that were to persist, the expensiveness of our residential property market might finally start to hit home with potential buyers.

"The good news is that the RBA has acknowledged an excessive heating up of the property market in the near term as a concern, but not a pressing one."

There is also concern winding back the JobSeeker 'coronavirus supplement' and JobKeeper later this month poses risks for the housing market.

Westpac chief economist Bill Evans says a bigger concern for the Reserve Bank at the moment is bond yields, which have been rising in recent weeks, off the back of RBA purchasing programs and quantitative easing.

"Readers will be aware that bond rates have 'taken off' ...  what is not clear is how much of this sharp increase in near term bond and swap rates is due to a significant reassessment of the outlook for monetary policy and how much is the impact of rising long rates by lifting the shorter end of the curve," he said.

"Clearly for the Bank to make a credible case that it expects conditions for the first-rate hike to be reached by mid-2024 ... it will have to be significantly lifting its forecasts for wages and inflation growth out to December 2023 in the August SOMP [Statement of Monetary Policy]."

See Also: What is a Housing Bubble, and is Australia in One?


RBA Governor Dr Philip Lowe at Crawford Forum, 2017. Photo by Crawford Forum on Flickr.

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): Great Southern Bank, 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.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Harrison is a Senior Finance Journalist, and joined Savings in 2020. Prior to joining Savings, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about informing readers on the strings being pulled in high-up places and how it affects everyday Australians.

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