The RBA has revealed its official cash rate decision for June, as Victoria endures a fresh round of the COVID-19 lockdown.
The Reserve Bank of Australia (RBA) has held the official cash rate at the current record-low of 0.10 per cent for June, in line with its position of leaving rates unchanged until at least 2024.
In his statement, RBA governor Dr Philip Lowe said that the board has decided to maintain current policy settings, including the yield on the three-year government bond and the parameters of the government bond purchase program.
He said that despite the strong recovery in the economy and jobs, inflation and wage pressures are subdued.
“While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and modest,” Dr Lowe said.
“In the central scenario, inflation in underlying terms is expected to be 1.5 per cent in 2021 and 2.0 per cent in mid-2023. In the short term, CPI inflation is expected to rise temporarily to be above 3.0 per cent in the June quarter because of the reversal of some COVID-19-related price reductions.
“The board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2.0 to 3.0 per cent target range.”
Mr Lowe also said that there has been an uptick in housing credit growth, driven by “strong” demand from owner-occupiers, particularly first home buyers. He also noted increased borrowing by investors.
“Given the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,” he said.
With the date for final drawings under the term funding facility on 30 June, Dr Lowe said that so far, authorised deposit-taking institutions have drawn $134 billion under this facility, with a further $75 billion available.
“The facility is providing low-cost fixed-rate funding for three years and so will continue to support low borrowing costs until mid-2024,” he said.
Dr Lowe said that the board would consider future bond purchases at the July board meeting following the completion of the second $100 billion of purchases under the government bond purchase program in September 2021, adding that the board continues to prioritise a return to full employment.
The RBA’s June rate call has followed the release of the 2021-22 federal budget, in which the federal government announced a range of new initiatives for home ownership and small businesses in the 2021-22 budget.
This included the Family Home Guarantee for single parents and dependants, extension of the Small and Medium Enterprise (SME) Recovery Loan Scheme, expansion of the JobTrainer Fund and the Boosting Apprenticeship Commencement (BAC) wage subsidy, and expansion of SME measures such as the instant asset write-off extension and cash loss provisions.
Economic certainty hinges on vaccine rollout: Finsure
Commenting on the RBA’s decision to hold the official cash rate, Finsure Group managing director John Kolenda noted that New Zealand has projected interest rate rises from the second half of next year.
He said: “New Zealand’s situation highlights how economies around the world are recovering from the pandemic.
“The US economy is rebounding; Britain is coming out of lockdown, and Australia’s economy is surging although the lockdown in Victoria highlights how fragile the recovery can be.”
Mr Kolenda said that the latest round of the circuit breaker lockdown in Victoria would be another major consideration for the RBA as the debate continues over when official interest rates could increase from the current record lows.
He added that uncertainty would linger in our domestic economy “until we make much more progress with our national vaccination program”.
He also pointed out that while the RBA could hold official rates for at least the next 12 months, lenders are continuing to increase their fixed rate offerings.
“Time is running out for consumers considering a long-term fixed rate option for their home loan,” he said.
“But there is no need to panic as there are plenty of other attractive low-rate offerings out there and lenders are still competing strongly for business.”
Loan Market sees rise in refinancing
Loan Market executive director Andrea McNaughton said that while the RBA’s decision to leave rates unchanged is in line with its long-term monetary outlook, the market should not rule out short-term changes to borrowing.
Noting the imminent end of the term funding facility on 1 July, Ms McNaughton said that several lenders had already tightened their fixed home loan rates before the expiry.
She also said that in addition to new loans, Loan Market has recorded a rise in the volume of borrowers seeking to refinance their loans.
Refinancers accounted for 41.2 per cent of broker volumes at the end of May, up from 31.3 per cent in December, Ms McNaughton said.
“Borrowers are acutely aware of the benefits of refinancing and taking advantage of historically low fixed rates which have started to move up,” Ms McNaughton said.
“Australia is in recovery mode but, as we’ve seen in Victoria this week, COVID-19 is still a health and economic disruption. It’s still vitally important for borrowers to be proactively managing their finances, and that’s where brokers can show their true value.”
Lockdowns signal need for more support: Mortgage Choice
Mortgage Choice CEO Susan Mitchell said that the RBA’s cash rate decision for June is unsurprising and reinforced its stance in its latest monetary policy statement, which reiterated that rates would not rise until inflation is sustainably within its target and there is a further tightening of the labour market.
She also noted that data from the Australian Bureau of Statistics (ABS) showed that the unemployment rate has continued on a downward trend, but added that wages growth has remain elusive.
She said: “There are signs the nation’s economic recovery is on track, but the latest lockdown in Victoria is a reminder that monetary and fiscal support will be required for some time yet.”
Ms Mitchell echoed Mr Kolenda’s point that some lenders have been raising interest rates on some fixed rate home loan products.
“If the RBA’s term funding facility, which expires at the end of this month, is not renewed at the board’s July meeting, we can expect further home loan interest rate rises,” she said.
Find out more about the economic trends and factors impacting the property market at the Better Business Summit 2021. Places are limited so make sure you secure your place at the five-state event asap!
[Related: RBA announces May cash rate]
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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