RBA keeps cash rate at 0.1% in February meeting, terminates bond buying program

The Reserve Bank of Australia.

The RBA left the cash rate at 0.1% at its first policy meeting of the year, while finally deciding to retire its $350 billion bond buying program, introduced in 2020 to shore up a struggling economy.

In his post-meeting statement, RBA governor Philip Lowe said the decision “follows a review of the actions of other central banks” and the functioning of domestic bond markets.

“More importantly, faster-than-expected progress has been made towards the RBA's goals and further progress is likely.”

Core inflation rose to 2.6% in the December quarter, largely due to price surges in fuel and building materials, finally putting it within the RBA’s target band of 2-3%.

While the spike in inflation has come as a surprise, Lowe once again poured water on the idea that higher prices alone warrant lifting the cash rate, choosing instead to focus on wages growth.

“While inflation has picked up, it is too early to conclude that it is sustainably within the target band. There are uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved,” Lowe said.

“Wages growth also remains modest and it is likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at target.”

CommBank, Westpac expect 2022 rate hike

Economists at some of the major banks have long been convinced that the RBA is behind the curve. Westpac recently brought forward its rate hike forecasts to August this year, while CommBank analysts believe the RBA will be forced to make its first move in November. 

Westpac chief economist Bill Evans believes that once the tightening cycle ends - which he expects will happen in March 2024 - we’ll be left with a cash rate of 1.75%.

Mozo’s banking expert Peter Marshall said that CommBank is more likely to be closer to the mark, as an August move wouldn’t allow enough time for wage increases to set in. 

“We'll see a few industries or a few groups here and there starting to get wage increases, but until it’s something that’s more broadly spread, I don’t think there will be a case for tightening monetary policy,” he said.

“The RBA will also want to have a high level of confidence that inflationary pressures are going to stick around, and it will take a few more quarters for that to happen.”

RELATED: Westpac lifts fixed rates after bringing forward RBA rate hike prediction

A day after it announced its revised forecast, Westpac lifted rates across its range of fixed rate loans by between 5 and 20 basis points. 

Similar moves have been made by 78 providers in our database since 1 November 2021, totalling 2,835 individual fixed rate increases. 

Mozo spokesperson Tom Godfrey said the flurry of changes might be disheartening for many borrowers, but there are still worthwhile options available for those looking to fix their mortgage. 

“While we are seeing banks hike fixed rates, there’s still a window to consider locking in a decent medium term rate that will give you predictable payments during what is almost certainly going to be a very turbulent time,” he said.

Among lenders we track, the lowest 1-year rate is 1.79% p.a. (2.18% p.a. comparison rate*) p.a. currently offered by UBank. On longer terms, Vic Bank offers 2.49% p.a. (3.49% p.a. comparison rate*) on 4-year options and 2.59% p.a. (3.43% p.a. comparison rate*) on 5-year options.

Average fixed home loan rates (OO, P&I)

Property prices to climb further this year

With many of the lowest mortgage rates on their way out, economists believe the momentum in the market will persist this year before property prices begin falling in 2023 — but not nearly enough to wipe out the gains from the most recent boom.

Domain’s latest House Price Report revealed that capital city prices rose 25.2% in 2021, lifting the median value of Australian houses to a record $1.066 million.

In Sydney, house prices rose by 33.1% — the steepest rate of growth on record. In dollar terms, the value of the average Sydney house increased by $400,000 over the year, or roughly $1,100 per day. 

But this year’s gains are expected to be more modest. According to CoreLogic research director Tim Lawless, a clearer picture will emerge in the coming months as more properties go to market.

“The early indication is that housing markets are starting 2022 with a similar trend to what we saw through late last year. Values are still broadly rising, but nowhere near as fast as they were in early 2021,” he said.

“A softening in growth conditions has been influenced by less government stimulus, worsening affordability, rising fixed term mortgage rates and, more recently, a slight tightening in credit conditions, and a surge in new listings through the final quarter of last year.”

For more information about property and lending trends, visit our home loan statistics page. And to work out how much you could be paying if rates go up, use our home loan repayments calculator.

Read last month's Reserve Bank interest rates update.

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