RBA keeps interest rates unchanged at December meeting

By Niko Iliakis ·

The Reserve Bank has opted to keep official interest rates unchanged at its latest policy meeting this afternoon. The cash rate currently sits at a record low 0.1%, where it has remained since early November.

"In Australia, the economic recovery is under way and recent data have generally been better than expected. This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support," said RBA Governor Philip Lowe in his post-meeting statement.

"In the RBA's central scenario, it will not be until the end of 2021 that the level of GDP reaches the level attained at the end of 2019. In the central scenario, GDP is expected to grow by around 5 per cent next year and 4 per cent over 2022."

The central bank announced a number of changes to key policy rates last month, including a 15 basis point reduction to the cash rate, three-year bond yield target, and term funding facility rate.

It also launched a quantitative easing program aimed at purchasing $100 billion worth of bonds with maturities of around five to ten years over a period of six months.

So far, the RBA has bought $19 billion worth of government bonds and a further $5 billion of Australian government securities in support of the 3-year yield target. Its balance sheet has increased by around $130 billion this year.

Lowe said the November package had already delivered substantial aid to the economy, and is helping to lower financing costs for borrowers and keep the exchange rate low. 

He also cautioned the government against withdrawing its fiscal stimulus, saying that while the economic outlook has picked up on news of a coronavirus vaccine, ongoing support will be necessary until it is widely available.

Where do home loan rates currently sit?

In response to last month’s decision, 33 of the 96 lenders in our database passed on some or all of the cut to their variable rate customers, but overall the picture has been dominated by cuts to fixed rates.

Rates below the 2.00% mark are no longer a rarity, and the RBA’s bond purchasing activities have helped push 4 and 5-year terms to the lowest they’ve ever been. Right now, the average 2-year rate is 2.35% p.a., while the average 5-year rate sits at 2.68% p.a.

If the Australian dollar continues to appreciate, we could see an expansion of the quantitative easing program in the first quarter of 2021. If this happens, we could see fixed rates drop even further.

Though less common, cuts to variable rates continue to flow through. At the time of writing, the average variable rate sits at 3.31% p.a. Among lenders we track, the lowest rates are currently offered by Reduce Home Loans at 1.99% p.a. (2.05% p.a. comparison rate*). 

For more information about mortgage and lending trends, visit our home loan statistics page. And if you want an idea of what loans are currently out there, browse our home loan comparison page, where you can filter your search by rate and type.

Home loan comparisons on Mozo - last updated January 16, 2021

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Niko Iliakis
Money writer

Niko Iliakis writes about home loans, property and interest rate movements for Mozo. With an eye for facts and figures, Niko deep-dives into topics to help readers understand key info and make more informed financial decisions.