RBA leaves cash rate at 0.1%, moves ahead with QE taper

The Reserve Bank of Australia.

The Reserve Bank of Australia will be moving forward with its plans to reduce its weekly bond purchases this month, though it intends to extend the program until at least February 2022.

RBA governor Philip Lowe remains confident the economy will bounce back as more arms are jabbed and restrictions are eventually eased, though there is still some uncertainty around the timing of the recovery.

Back in July, the RBA announced it will be paring back its bond purchase program from $5 billion a week to $4 billion starting September. It surprised many last month by committing to that timeline despite the cloudy economic outlook.

The minutes from its August meeting revealed the Board would only renege on plans to taper the QE program if a worsening health situation further dented the country’s recovery efforts.

Since then, the number of daily cases in NSW has climbed to 1,281 and Victoria and the ACT have been plunged into lockdowns of their own.

Today’s decision to persist with the taper was defended on the grounds that the economy had built up considerable momentum and the Delta outbreak would likely “delay, but not derail, the recovery.”

While GDP is expected to contract over the September quarter, Australia managed to narrowly avoid a double-dip recession with economic growth of 0.7 per cent in the June quarter. Over the year, GDP has also gone up by nearly 10 per cent.

“While the outbreak is affecting most parts of the economy, the impact is uneven, with some areas facing very difficult conditions while others are continuing to grow strongly,” Lowe said.

“Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5 per cent and job vacancies were at a high level.”

RELATED: Home values have soared at a rate of $1,990 per week over the past year

While the RBA mulls over the economic impact of the lockdowns, ultra-low mortgage rates continue to support the property market, though there are signs that affordability constraints are beginning to set in.

Over the past 12 months, property research firm CoreLogic has recorded an 18.4 per cent increase in Australian home values, equating to gains of around $103,400, or $1,990 per week.

In fact, CoreLogic research director Tim Lawless says growth in the housing market has outpaced wages growth by nearly 11 times, creating a “significant barrier to entry for those who don’t yet own a home.”

Those who have been lucky enough to get a foot on the property ladder will benefit from low rates for some time yet, with Lowe reiterating the first increase to the cash rate will most likely come in 2024.

In the meantime, out-of-cycle cuts to variable rates will continue to flow through as lenders look to retain their competitive edge. Right now, the average owner occupier variable rate in our database sits at 3.14% p.a. — the lowest since we began tracking in 2015.

Fixed rates have also been trending downwards, with the exception of 4 and 5-year options which have been on a steady incline since March 2021.

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.

Read last month's Reserve Bank interest rates update.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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