RBA holds the line, keeps interest rates at 0.1% in March

The Reserve Bank of Australia handed down its second policy decision of the year this afternoon, announcing it will keep official interest rates at their current setting of 0.1 per cent.

After a wild few weeks which saw bond yields surge on the view the economy would recover sooner than expected, RBA Governor Philip Lowe doubled down on the Bank’s outlook for inflation and unemployment.

“Further progress in reducing spare capacity is expected, but it will be some time before the labour market is tight enough to generate wage increases that are consistent with achieving the inflation target,” he said.

“The Board does not expect these conditions to be met until 2024 at the earliest.”

Under the RBA’s central scenario, unemployment is expected to remain at 6 per cent at the end this year and 5½ per cent at the end of 2022. Inflation will hover around 1¼ per cent over 2021 before increasing to 1½ per cent over 2022.

Lowe said current monetary policy settings have delivered substantial aid to the economy by keeping borrowing costs low, and bond purchases made earlier this week have helped ensure the smooth functioning of the market.

“To date, a cumulative $74 billion of government bonds issued by the Australian Government and the states and territories have been purchased under the initial $100 billion program,” he said.

“A further $100 billion will be purchased following the completion of the initial program and the Bank is prepared to do more if that is necessary.”

RELATED: Property prices rise at fastest pace in 17 years

The rapid growth in the property market is expected to continue on the back of record low interest rates, raising concerns that first home buyers could be shut out as property prices surge.

But unlike the Reserve Bank of New Zealand, which recently agreed to consider housing affordability when setting monetary policy, the RBA won’t be sounding any alarms so long as lending standards remain sound.

Last month, CoreLogic’s monthly home value index saw prices in Australia jump up by 2.1 per cent, marking the largest month-on-month change the property research firm has recorded since August 2003. 

Gains were distributed fairly evenly across the country, with regional markets posting average increases of 2.1 per cent and capital city markets rising by an average of 2 per cent.

Analysts from the major banks are now confident we’ve passed the bottom of this property cycle, with Westpac the latest to upgrade its forecasts. It now predicts a 20 per cent increase in property prices over the next two years, which would see Sydney values rise by more than $200,000.

This momentum will be supported by low fixed rates in particular. The latest ABS lending indicators show new fixed rate commitments for January 2021 were more than 200 per cent higher than they were before the RBA began its bond purchasing activities last year.

According to research by Mozo, 29 per cent of the major banks’ mortgage books are now fixed, an increase of 12 per cent over the past financial year.

Among lenders we track, the average 2-year fixed rate currently sits at 2.32% p.a., almost a full percentage point lower than the average variable rate of 3.29% p.a. While cuts to variable rates continue to flow through, lenders look to be competing mainly on the fixed rate front.

Greater Bank currently occupies the top spot in our database, offering owner occupiers 1.69% p.a. (3.49% p.a. comparison rate*) on 1-year terms for its Great Rate Home Loan. 

Online lender UBank has also extended its UHomeLoan discount offer, which is among the lowest rates on the market. Owner occupiers who apply before 29 April 2021 can receive a 1.75% p.a. fixed rate (2.22% p.a. comparison rate*) on 3-years terms.

For more information about mortgage and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.