RBA holds cash rate at 0.10% in October

author-avatar By on October 05, 2021
RBA holds cash rate at 0.10% in October

Australia's central bank has now left the historically low cash rate untouched since November 2020 - but when will it rise?

The Reserve Bank for Australia (RBA) has held the cash rate steady at 0.10% for almost a year now, with the last change taking place in November 2020.

This decision was highly anticipated by economists, as RBA Governor Dr Philip Lowe has repeatedly maintained that the cash rate will not rise until inflation and wage growth are 'sustainably' within the 2 to 3% target range.

Dr Lowe said wage and price pressures remain 'subdued'.

"In underlying terms, inflation is running at around 1.75% and wages, as measured by the Wage Price Index, are increasing at just 1.7%," Dr Lowe said.

The RBA does not forecast a rate rise until 2024, but many economists predict it could rise sooner than this.

Commonwealth Bank (CBA) economists have forecasted the first hike to come into effect in November 2022, 'well ahead' of the RBA's 2024 timeline.

Additionally, ANZ economists have predicted that the official cash rate could rise to 0.50% in 2023, with wage growth and inflation forecast to sustainably hit the 2-3% band by late 2022. 

Despite the ongoing low central bank cash rate, new research from Aussie revealed there has been more than 1,000 home loan interest rate changes since November 2020.

According to the findings, there has recently been a strong uptick in lenders raising their fixed rates.

Calls for lending regulation as credit growth surges

House prices are continuing to rise, but Dr Lowe references declines in some markets due to virus outbreaks.

"Housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors," Dr Lowe said.

Housing credit grew by 8.1% annualised over the three months to August - the fastest three month pace since 2010.

The Council of Financial Regulators is currently in talks about the risks of rapid credit growth at a time with historically low interest rates.

"In this environment, it is important that lending standards are maintained and that loan serviceability buffers are appropriate," Dr Lowe said.

Callam Pickering, APAC economist at Indeed, said that macroprudential policies could be used to curb risky lending, and that in past use they have been quite effective.

"Macroprudential policies, if necessary, are certainly preferable to raising the cash rate prematurely," Mr Pickering said.

"Raising rates to stunt house price growth, at the expense of the broader economy, would be misguided."

A look across the ditch 

The Reserve Bank of New Zealand (RBNZ) was widely tipped to raise its official cash rate, or OCR, at its last meeting.

As of August, RBNZ's cash rate was held at 0.25%.

Any potential rate rise was delayed due to the latest spate of Covid lockdowns hitting the country, particularly Auckland.

Despite this, a new 'Ready Reckoner' models potential cash rate scenarios based on recent New Zealand economic data.

Based on the latest data, the 'Ready Reckoner', forecasts an OCR of 2.2% in the third quarter of 2023, according to Westpac IQ.

This would be 195 basis points, or 1.95%, higher than it is now.

"The latest Covid lockdown is hard to interpret from a Ready Reckoner point of view," the Westpac IQ report said.

"What actually matters here is the output gap relative to potential. Lockdowns lead to a sharp drop in both actual and potential GDP, and experience has shown that both bounce back quickly once restrictions are lifted."


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Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

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Rates correct as of October 27, 2021. View disclaimer.


Image by Tim De Pauw 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): 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.

*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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Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

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