RBA leaves cash rate unchanged in April as economy continues to recover
The Reserve Bank of Australia has retained official interest rates to 0.1% at its April meeting this afternoon, as Australia’s economic recovery continues with only an occasional minor downside.
In his statement after the meeting, RBA Governor Philip Lowe said current policy settings have helped support employment and aggregate demand, but uncertainties remain about the outlook.
“GDP grew 3.1% in the December quarter, spurred by a further increase in household consumption as the health situation improves. The recovery is expected to continue, with above-trend growth this year and next, ”he said.
“Nevertheless, the pressures on wages and prices are moderate and are expected to remain so for a few years. The economy is operating with considerable spare capacity and unemployment is still too high. “
The yield on Australian 3-year government bonds was also unchanged, as were the parameters of the Board’s quantitative easing program and term funding facility.
“The initial $ 100 billion government bond purchase program is nearing completion and the second $ 100 billion program will begin next week,” Lowe said.
“Beyond that, the Bank stands ready to undertake further bond purchases if this could help advance towards the goals of full employment and inflation.”
Ultra-low interest rates have ignited a fire in the residential real estate market, with CoreLogic’s home value index climbing 2.8% in March – the fastest growth rate recorded in 32 years.
While the RBA and regulators are on the lookout for out-of-control pricing, they haven’t shown much interest in stem the tide. At a recent economic forum, APRA Chairman Wayne Byres said the regulator did not have a mandate to target housing affordability.
Instead, he’ll keep a close eye on lending standards, especially the share of high LVR and high debt-to-income ratio loans. So far, he maintains that the subprime loan rate has not moved away from historical averages.
The decrease in the number of mortgage deferrals is also promising. The latest figures from APRA show that as of February 28, only 0.5% of all loans – or $ 14 billion – were still deferred.
For the RBA, a booming real estate market is not so much a problem to contain but a necessary ingredient to accelerate economic growth and generate inflation within the target range of 2-3%.
Lowe again ruled out an increase in cash rate until this target is achieved, claiming that the labor market must first improve enough to start generating wage increases.
This means that variable rates will remain low for some time to come, but a different picture emerges on the fixed rate front. Over the past month, a number of banks quietly increased their 4- and 5-year fixed rates in response to rising funding costs.
This included the Commonwealth Bank, which raised 4-year rates on its Fixed Rate Wealth Package 20 basis points. It now has a fixed rate of 2.19% per year (3.73% comparison rate per year *).
Further hikes in long-term fixed rates are expected in the coming months as banks prepare for the end of the RBA term finance facility later this year.
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