Reserve Bank of Australia keeps unprecedented low cash rate on hold

The Reserve Bank of Australia has kept official interest rates on hold as widely expected but speculation of a 2022 move continues as fixed rate bargains disappear from the market.

Following its monthly board meeting on Tuesday, the central bank announced the cash rate – the interest rate on unsecured overnight loans between banks – would stay for now at the historic low of 0.1 per cent.

“Inflation has increased but, in underlying terms, is still low at 2.1 per cent,” RBA governor Philip Lowe said.

“The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.

“This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.

“This is likely to take some time and the board is prepared to be patient.”

Reserve Bank of Australia keeps unprecedented low cash rate on hold

Camera IconReserve Bank of Australia governor Philip Lowe said inflation was still low at 2.1 per cent. James Brickwood/AFR Credit: News Corp Australia

The rate was reached after a series of cuts that began in March last year as the Covid-19 crisis kicked in.

The central bank last month opened the door for a hike sooner than its oft-repeated 2024 prediction, conceding price inflation had picked up sooner than thought and suggesting a 2023 move was possible.

But various economists and market observers believe it may come next year.

“In spite of a cash rate that hasn’t moved for a year, interest rates are on the march in both directions, heading down for variable rates and up for fixed rates – a sure sign that the market expects the Reserve Bank to move up in the coming 12 months or so,” Canstar group executive of financial services Steve Mickenbecker said.

“The fixed interest rate bargains are disappearing from the market for terms beyond 12 months, with all of the competitive action happening in variable rates that the banks can increase at any time.”

Reserve Bank of Australia keeps unprecedented low cash rate on hold

Camera IconCanstar’s Steve Mickenbecker says the market clearly expects the Reserve Bank will hike the cash rate in the next 12 months or so. Credit: Supplied

CreditorWatch chief economist Harley Dale said the RBA might well be contemplating the prospect of interest rates rising sooner than officially conveyed but seemed happy to play Santa for now, with its next decision due on the first Tuesday of February.

“Conjecture regarding when the RBA will move is only going to escalate in 2022,” Mr Dale said.

“That in and of itself is not helpful for household and especially business confidence.

“Yet in such a dynamic economic environment, early February 2022 is a long way off.

“The first meeting of the RBA board next year will convene with considerably more information regarding the economic environment.

“That statement at the very beginning of February may set tongues wagging.”

Mr Mickenbecker said Australians were becoming nervous about property next year, with 47 per cent of survey respondents expecting higher interest rates, rising levels of mortgage stress and foreclosures.

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