3 min read | 6 Apr, 2021
RBA Low Rates Remain Despite surging House Prices
Despite surging house prices, the Reserve Bank will continue to keep interest rates steady.
At its April monetary policy meeting earlier today, the central bank elected to keep the cash rate at 0.10%, where it has stood since Melbourne Cup Day in November last year.
The hold was despite talk that the RBA may be forced to act to address raising house prices.
Speaking at the Australian Financial Review Business Summit in early March, RBA Governor Dr Philip Lowe reaffirmed the central bank’s stance on monetary policy and house prices, and when it expects interest rates to rise.
I would like to reiterate that the RBA does not target housing prices, nor would it make sense to do so, Dr Lowe said.
I recognise that low interest rates are one of the factors contributing to higher housing prices and that high and rising housing prices raise concerns for many people. There are various tools, other than higher interest rates, to address these concerns, leaving monetary policy to maintain its strong focus on the recovery in the economy, jobs and wages.
Dr Lowe said that despite climbing property prices, the cash rate is likely to remain low until 2024 since it is unlikely wage growth will reach greater than 3% before that time.
Predicting how long [wage growth] will take is inherently difficult, so there is room for different views. But our judgement is that we are unlikely to see wages growth consistent with the inflation target before 2024, he said.
This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.
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Fixed-rate lending popular as low rates continue
Lenders are continuing to offer record low interest rates but evidence suggests that long-term, they may be preparing for hikes.
In March, Commonwealth Bank, National Australia Bank and Westpac all introduced further interest rate cuts, lowering their two-year fixed rate offerings to below 2%.
Westpac was first, dropping its two-year fixed rate home loan to 1.79% p.a. NAB followed, reducing its product to 1.89% p.a. (down from 2.04% p.a.).
CBA was last, lowering its two-year fixed rate wealth package home loan to 1.94% p.a.
But though short-term fixed rates are having their time in the sun, lenders are slowly increasing interest rates on longer fixed-rate terms.
- RBA Governor Philip Lowe AFR Business Summit Speech
- News.com.au Half of big four banks now offer two-year fixed home loan rate below 2 per cent, pressure on CBA, ANZ to follow
- Sydney Morning Herald Banks under pressure to lift long-term rates as funding costs rise
- ABS Labour Force survey February 2021
- Opening statement – Economics Legislation Committee
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