Interest rates kept on hold in last RBA meeting of the year

Despite an increase in inflation, the Reserve Bank of Australia left monetary policy settings unchanged at its final meeting of the year, pointing to lacklustre progress towards other targets such as wages growth.

In his post-meeting statement, RBA governor Philip Lowe said the Bank is prepared to be patient regarding the timing of the next rate hike.

“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,” he said.

The RBA had spent the better part of the year insisting that official interest rates — which have remained at 0.10 per cent since November last year — would not go up until at least 2024.

But a rapidly improving economy and rising inflation forced the central bank to walk back that forecast in last month's policy meeting. It now admits that interest rates could begin rising as early as 2023.

Last week, the Organisation for Economic Cooperation and Development said that if the inflationary spike persists, it could force the RBA to tighten monetary policy even sooner. 

But the RBA believes inflation pressures will remain low until wages growth — which lifted to 2.2 per cent over the September quarter — sits well above the 3 per cent mark.

Data from ANZ released Monday shows the number of job advertisements increased by 7.4 per cent last month, suggesting a strong recovery in the labour market and eventual pick-up in wages is underway.

RELATED: Homeowners switch mortgages in near-record numbers as variable rates fall

ANZ senior economist Catherine Birch said the unemployment rate is expected to drop below 5 per cent in the near term, before falling to around 4 per cent by the end of 2022 and even further in 2023.

“We think competition for labour will get even hotter and workers will exercise their new power by changing to better jobs and asking for higher wages in 2022,” she said.

Meanwhile, ultra low mortgage rates continue to fuel the property boom. CoreLogic recorded a 1.3 per cent increase in prices over November, bringing the annual growth rate to 22.2 per cent and adding around $126,700 to the median Australian home.

While this marks the 14th consecutive month that dwelling values have increased, CoreLogic research director Tim Lawless notes that the pace of growth has slowed considerably since peaking at 2.8 per cent in March.

“Virtually every factor that has driven housing values higher has lost some potency over recent months,” he said.

“Fixed mortgage rates are rising, higher listings are taking some urgency away from buyers, affordability has become a more substantial barrier to entry and credit is less available.”

The RBA will reconvene in February 2022. While a shift in outlook for the cash rate is unlikely, Westpac chief economist Bill Evans said there is a chance it will taper its weekly bond purchases from $4 billion to $2 billion.

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.