Not horsing around: RBA holds the cash rate at 0.10% but drops 2024 guidance

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on November 02, 2021 Fact Checked
Not horsing around: RBA holds the cash rate at 0.10% but drops 2024 guidance

While punters line their stomachs with chandy and triangle sandwiches before the big race, the Reserve Bank has decided to hold the cash rate.

The Reserve Bank has held the cash rate at 0.10% since November last year, when Savings.com.au writers forgot which horse even won 2020's Melbourne Cup in a mad dash to report on the story.

Today's move was widely expected, however this rate decision was watched with bated breath.

In today's statement of monetary policy RBA Governor Dr Philip Lowe moved away from a steadfast 2024 guidance, but ruled out a 2022 cash rate hike.

"I recognise that some other central banks are raising rates, but our situation is different. The Board will not increase the cash rate until inflation is sustainably in the target range," Dr Lowe said in a webinar.

"We are prepared to look through spikes in the inflation rate, as we have done with headline CPI inflation this year. For inflation to be sustainably in the target range, wages growth will have to be materially higher than it is now.

"This is likely to take time. The Board is prepared to be patient."

Across the ditch, the Reserve Bank of New Zealand (RBNZ) has already increased the cash rate, and all but pencilled-in a few more over the next year.

The Bank of Canada has also hastily wound back its bond purchasing program, and suggested it will raise its own cash rate from the second quarter of 2022.

Guidance dropped - what does it mean?

Economists expected RBA Governor Dr Philip Lowe to drop the Bank's 2024 guidance on a cash rate hike - it did exactly that.

Last Thursday, the Bank did not commit to purchasing the April 2024 Commonwealth Government Bond, which caused a flurry of speculation among investors and market watchers.

As a consequence, the April 2024 bond yield grew to 0.5% - 40 basis points higher than the RBA would have originally liked.

Higher yields mean the Australian Government pays higher interest on its debt and budget deficits. 

On Monday, Westpac chief economist Bill Evans called on Dr Lowe to drop the Bank's 2024 guidance on raising the cash rate.

"If the Bank adopts the more upbeat outlook that aligns fairly closely with Westpac’s forecasts, then the 2024 condition would not be consistent with the revised forecasts," Mr Evans said.

"Personally, I would strongly applaud acceptance that the Governor now expects that the conditions necessary to begin the move away from the emergency policy settings will be achieved earlier than previously expected.

"The strong existing guidance, particularly during 2020, was key to underpinning confidence in the RBA’s commitment to doing everything reasonably within its powers to protect the Australian economy."

Market pressures

Headline inflation has breached the 3.0% barrier for two consecutive quarters now, however the trimmed mean remains much lower while wages remain stagnant.

Previously, RBA Governor Dr Philip Lowe repeatedly maintained the central bank would not increase the cash rate until both wage growth and inflation are in a sustained band of 2 to 3%.

The RBA does not forecast this happening until 2024.

"Inflation is, however, a little higher than it has been over recent years. This increase largely reflects higher oil prices in global markets, higher prices for residential construction and strained global supply chains," Dr Lowe said.

"Looking forward, we are expecting a further, but gradual, increase in underlying inflation.

"Our business liaison suggests that wage growth remains modest, although there are some hotspots.

"Wages growth is expected to pick up as the labour market tightens, but this pick-up is expected to be gradual."

However the major banks recently brought forward their cash rate hike forecasts.

CommBank had the earliest tip at November 2022, while the others put theirs at some time in 2023.


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The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, 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 breaking down complex financial topics for the everyday consumer.

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