RBA leaves cash rate unchanged in April as economy continues to claw back

Exterior of the Reserve Bank of Australia building.

The Reserve Bank of Australia kept official interest rates at 0.1% in its April meeting this afternoon, as Australia’s economic recovery proceeds with only the occasional minor drawback.

In his post-meeting statement, RBA governor Philip Lowe said current policy settings have helped prop up employment and aggregate demand, but there are still uncertainties regarding the outlook.

“GDP increased by a strong 3.1% in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next,” he said.

“Nevertheless, wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacity and unemployment is still too high.”

The yield on the 3-year Australian Government bonds also remained unchanged, along with the parameters of the Board’s QE program and term funding facility.

“The initial $100 billion government bond purchase program is almost complete and the second $100 billion program will commence next week,” Lowe said.

“Beyond this, the Bank is prepared to undertake further bond purchases if doing so would assist with progress towards the goals of full employment and inflation.”

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Ultra-low interest rates have lit a fire under the residential property market, with CoreLogic’s home value index climbing 2.8% in March — the fastest rate of growth recorded in 32 years. 

While the RBA and regulatory bodies are alert to runaway prices, they haven’t shown much interest in stemming the tide. At a recent economic forum, APRA chair Wayne Byres said the regulator has no mandate to target housing affordability.

Instead, it will be keeping a close eye on lending standards, particularly the share of high LVR and high debt-to-income loans. So far, it maintains that the rate of risky lending has not strayed from historical averages.

The drop in the number of mortgage deferrals is also promising. The latest figures from APRA show that as of 28 February, only 0.5% of all loans - or $14 billion worth - was still deferred.

For the RBA, a booming property market isn’t so much a problem to be contained but a necessary ingredient to fast track economic growth and deliver inflation within the 2 to 3% target range. 

Lowe once again ruled out an increase to the cash rate until that target has been reached, saying the labour market must first improve enough to start generating wage increases. 

That means variable rates will remain low for some time yet, but a different picture is emerging on the fixed rate front. Last month, a number of banks quietly increased 4- and 5-year fixed rates in response to rising funding costs.

That included the Commonwealth Bank, which lifted 4-year rates on its Fixed Rate Wealth Package by 20 basis points. It now comes with 2.19% p.a. fixed rate (3.73% p.a. comparison rate*).

More increases to long-term fixed rates are expected in the coming months as banks prepare for the end of the RBA’s term funding facility later this year.

For more information about mortgage and lending trends, head over to our home loan statistics page. And to see where interest rates currently sit, visit our home loan comparison page.

Read last month's Reserve Bank interest rates update.

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