RBA makes final cash rate call of the year

Indeed, following the bank’s decision to cut the cash rate to its record low in November 2020, RBA governor Philip Lowe revealed that the central bank does not expect to increase the official cash rate for “at least three years”, or at least until there is a lower rate of unemployment and a return to a “tight” labour market.

He reiterated this stance at the December rate call, too, saying: “The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market.

“Given the outlook, the board is not expecting to increase the cash rate for at least three years. The board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation. The board is prepared to do more, if necessary.”

As such, it has decided to hold the rate where it is and continue its broader quantitative easing program, as announced in November, which includes a program of government bond purchases, including the purchase of $100 billion of government bonds over the next six months (purchasing bonds issued by the Australian government as well as by the states and territories).

Sam White from the Loan Market Group commented: “The market doesn’t need a rate cut at the moment – it needs easier access to finance. There’s no shortage of pre-approvals at the moment. In many suburbs, it’s now cheaper to pay a mortgage than to rent. We’re seeing the economy stabilise relatively quickly. The economy has proved to be much more resilient than first thought.”

He added that he believed there was “renewed confidence in the marketplace and that the next change in the cash rate will be an increase but the timing on that is difficult to predict as there are numerous factors, including the availability of a COVID-19 vaccine, to consider”.

Susan Mitchell, CEO of Mortgage Choice, also commented ahead of the cash rate decision, stating: “In the minutes of the November monetary policy meeting, members said that negative rates were extraordinarily unlikely, suggesting we may not see another reduction to the cash rate so soon.

“That being said, the historic low cash rate is supporting the lowest borrowing cost on record and driving activity in the nation’s housing market. It is also encouraging a surge in refinancing from borrowers looking for a better deal.”

Finsure managing director John Kolenda commented: “The RBA is due for some long service leave next year after cutting rates three times in response to the coronavirus pandemic.

“I expect rates to be left on hold for some time, and we may even see a similar situation to a few years ago when the RBA left rates on hold between September 2016 and June 2019, when it lowered the cash rate from 1.5 per cent to 1.25 per cent,” Mr Kolenda said.

Mr Kolenda said expectations of a spending spree in the lead-up to Christmas this year also augured well for the domestic economy. 

“There are some very positive signs of a rebound with consumer confidence and spending on the rise, which is an indicator we have likely seen the worst of the downturn,” he said. 

“I expect the property market will be a strong feature of the national economy over the coming 12 months, with strong results being recorded around the country. 

“Consumers are also taking advantage of the low home loan rates on offer and refinancing in big numbers with fixed rates now under 2.0 per cent and lenders competing fiercely for business. 

“All signs across the economy indicate we might have hit the bottom and that rates have also hit that level and we are not likely to see any further easing in the foreseeable future. 

“Despite the positive outlook, mortgage-holders need to be vigilant about the interest rate they are paying, and if need be, contact an experienced mortgage broker to make sure you are getting the best deal.”

[Related: RBA announces November cash rate decision]