The Reserve Bank of Australia (RBA) has held the official cash rate at the current record-low of 0.10 per cent for June, while noting that medium-term inflation expectations have lifted from near record lows to be closer to the central bank’s targets.
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.
Commenting on the RBA’s rate decision, CreditorWatch chief economist Harley Dale said that the updates on the economic recovery has remained positive, “including better than expected outcomes for the business sector and red-hot property prices”.
“The synchronisation of expansionary fiscal policy and ultra-low interest rates are clearly paying dividends, and the RBA appears quite comfortable with the current situation as the central bank holds fast on interest rates until the dynamics of Australia’s inflationary pressures change,” Mr Dale said.
“We still need to work hard to find a decent inflationary pulse for the economy, though, and that ever-elusive evidence of upward pressure on wages.
“With one month to go until the RBA’s $200 billion term funding facility for banks comes to an end and questions around whether the RBA will inject additional liquidity to complement the federal government’s expansionary fiscal policy, H2 will be an important time for boosting business investment and ensuring Australia’s economic recovery remains durable.”
The federal government announced a range of new initiatives for home ownership and small businesses in the 2021-22 budget, including 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.
Digital lending and payments platform WLTH CEO Brodie Haupt said that the RBA is predicted to hold rates for the foreseeable future despite growth in the property market over the past few months.
“The RBA has continuously said that they won’t be increasing the cash rate until inflation is back within the target range, and with no sign of this at the moment, I can’t see the rates lifting earlier than expected,” Mr Haupt said.
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[Related: RBA makes May cash rate decision]