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RBA cash rate

On the 1st of March 2022, it was announced that the Reserve Bank of Australia (RBA) would keep the RBA cash rate at 0.10% for another month. However, the RBA maintains its decision to be patient while monitoring how various factors affect inflation evolves.

RBA cash rate official announcement explained

The Board decided to preserve the cash rate target at ten basis points, and the interest rate on Exchange Settlement balances at 0%.

The global economy is continuing to convalesce from the pandemic. However, the war in Ukraine is a significant new cause of uncertainty. Inflation in regions of the world has increased dramatically due to significant rises in energy prices and disturbance to supply chains at a time of strong demand. In addition, the prices of many commodities have increased further due to the war in Ukraine. As a result, bond yields have increased over the past month, and projections of future policy interest rates have escalated.

Market resilience

The Australian economy remains durable, and spending is inclining following the Omicron setback. Household and business balance sheets are generally good, a boost in business investment is underway, and there is a large conduit of construction work to be completed. Macroeconomic policy settings remain supportive of growth.

The economy’s resilience is apparent in the labour market, with the unemployment rate at a 14-year low of 4.2%. Underemployment is also near its lowest level since 2008. Hours worked decreased notably in January due to the Omicron outbreak, but the decrease in infection rates and increase of job vacancies point to a strong recovery over the months ahead. As a result, the RBA’s focal prediction is for the unemployment rate to fall to below 4% later in the year and to remain below 4% next year.

The current market – impact on RBA cash rate decision

Wages growth has improved but, at the aggregate level, is only around the commensurately low rates prevalent before the pandemic. A further increase in wages growth and broader measures of labour costs is anticipated as the labour market tightens. However, this pick-up is still presumed to be incremental, although there is uncertainty regarding the response of labour costs at historically low rates of unemployment.

Inflation has improved more quickly than the RBA had expected but remains lower than in many other countries. The focal forecast is for underlying inflation to increase further in coming quarters to around 3¼%, before declining to around 2¾% over 2023 as the supply-side problems are reconciled, and consumption patterns normalise. However, the CPI inflation rate will spike higher due to the higher prices of petrol resulting from global conflicts. How long it takes to reconcile the disruptions to supply chains is an essential cause of uncertainty relating to the inflation perspective, as are progressions in global energy markets.

Fiscal conditions in Australia continue to be highly accommodative. Interest rates remain low, although some fixed rates have recently increased. The Australian dollar exchange rate is near its lows of the past year. Housing prices have risen strongly, although the rate of increase has eased in some cities. With interest rates at archival low levels, it is essential that lending standards are maintained and that borrowers have adequate buffers.

What the near future holds

The Board is dedicated to maintaining highly supportive monetary conditions to achieve Australia’s return to full employment and inflation consistent with the goal. The Board will not raise the cash rate until true inflation is sustainably within the 2-3% goal range. While inflation has improved, it is too early to conclude that it is sustainably within the target range.

There are uncertainties about how persistent the improvement in inflation will be, considering recent occurrences in global energy markets and continuous supply-side issues. Concurrently, wages growth remains modest, and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target. The Board is willing to be patient as it monitors how the various factors affecting inflation in Australia evolve.

How does this affect the property market?

This month’s announcement is welcome news for property owners. However, there is still speculation the RBA could increase the cash rate as early as June, as inflation has risen faster than expected.

Homebuyers could face increased mortgage repayments as soon as June, 2022, as financial markets and economists warn an expeditious accumulation in inflation could force the RBA to increase official rates higher than 2 per cent within 12 months.

In an occurrence that contributes to growing federal concerns about cost-of-living pressures leading into an election due by May, the Commonwealth Bank, the nation’s biggest lender, said it believed the RBA would have to begin raising interest rates by the middle of the year.

Even a 1% rise could add hundreds of dollars a month in repayments on the average new mortgage.

We’ve seen fixed-rate home loans creep up in recent months, but there is still a lot of competition amongst lenders for your business.

Interest rates are increasing, and the banks are yearning for your business.

While fixed rates have been incrementally increasing for months, variable rates are still being slashed but predominantly for new customers, unless you know what to ask for. So, now is the opportune time to obtain professional advice to help you negotiate and secure a cut that will endure the life of your loan.

The nation’s biggest home loan lender, Commonwealth Bank, conceded intense competition.

“We’ve seen rising levels of competitive intensity in the market, not just in housing but in several different areas,” CEO Matt Comyn told 9News.

“We believe that intense competition is going to continue, which is of course great news for customers.”

Property market snapshot – February 2022

The CoreLogic Daily Home Value Index is part of the suite of housing market indices produced by CoreLogic. Since being launched in 2007, the Index has established a new benchmark for measuring value changes across the Australian housing market.  The Home Value Index aims to measure month to month movements in the value of Australian housing markets.

Vogue Advisory Group – helping you understand the impact of the RBA cash rate

If you need help understanding what this announcement means for you, don’t hesitate to get in touch with us, we are here to assist in any way we can.

RBA cash rate