RBA keeps cash rate steady in June

The Reserve Bank of Australia offered no surprises at its June policy meeting this afternoon, deciding to keep official interest rates on hold at 0.10 per cent.

Consumer and business confidence continues to improve, but Victoria’s return to lockdown is a dismal reminder of how vulnerable the economy is — and will be, until the vaccine rollout gathers pace.

Despite the setback, RBA governor Philip Lowe said the Board will be sticking to its forecasts for GDP growth, which were revised upwards last month.

“The Bank's central scenario is for GDP to grow by 4¾ per cent over this year and 3½ per cent over 2022. This outlook is supported by fiscal measures and very accommodative financial conditions,” he said.

“Progress in reducing unemployment has been faster than expected, with the unemployment rate declining to 5.5 per cent in April.”

The parameters of the Term Funding Facility and the government bond purchase program will also remain unchanged, though the TFF is due to be terminated at the end of the month.

“At the July meeting the Board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September,” said Lowe.

Since it cut the cash rate in November last year, the RBA has ruled out an increase until the labour market improves and inflation is within 2 to 3 per cent. It doesn’t expect this target to be met until 2024 at the earliest.

In stark contrast, the Reserve Bank of New Zealand recently surprised market pundits by announcing its next rate hike could come as early as the second half of 2022.

Central bankers in the UK, US and Canada have hinted at similar moves, leading some to believe that inflationary pressures will force the RBA to tighten monetary policy sooner than planned.

How is the property market faring?

The property market continues to enjoy broad-based growth, with CoreLogic’s Home Value Index for May showing prices rose 2.3% in capital cities and 2.0% across regional areas.

While the smaller markets initially led the charge, it’s currently the more expensive cities that are seeing the highest rate of appreciation. Sydney currently leads among capital cities with 9.3% growth over the past three months.

Looking forward, Westpac economists expect home values to rise by 15% over the year before slowing to 5% in 2022. The rate of growth will then taper off further as market forces start to exert downward pressure on demand.

“Affordability and macro-prudential measures are set to slow the market from here. Supply and demand factors may also come to play depending on the duration of external border closures,” they said.

Construction on new housing has already begun to dip, with the latest ABS figures showing new building approvals dropped 8.6% in April after rising 18.9% in March. 

Mortgage rates remain at record lows, but with the RBA’s Term Funding Facility ending in a few weeks, the window for locking in a cheap fixed could soon close.

A number of lenders have begun hiking 4 and 5-year fixed rates in response to rising funding costs, including NAB, ING, Citi, Greater Bank, Macquarie, Tic:Toc, and Well Home Loans.

Among lenders we track, the current rate leader for 1-year terms is bcu, which offers interest rates as low as 1.67% p.a. (3.84% p.a. comparison rate*). Meanwhile, BankVic offers the best value 4-year rate at 1.95% p.a. (3.40% p.a. comparison rate*).

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