Reserve Bank news

The Reserve Bank of Australia and the Australian Prudential Regulation Authority have been given a combined grade of D minus for their environmental policies, in a new report from Positive Money.

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.”RELATED: Autumn property, how to stay ahead as the auction market heats upUltra-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.

The Reserve Bank of Australia handed down its second policy decision of the year this afternoon, announcing it will keep official interest rates at their current setting of 0.1 per cent.After a wild few weeks which saw bond yields surge on the view the economy would recover sooner than expected, RBA Governor Philip Lowe doubled down on the Bank’s outlook for inflation and unemployment.“Further progress in reducing spare capacity is expected, but it will be some time before the labour market is tight enough to generate wage increases that are consistent with achieving the inflation target,” he said.“The Board does not expect these conditions to be met until 2024 at the earliest.”Under the RBA’s central scenario, unemployment is expected to remain at 6 per cent at the end this year and 5½ per cent at the end of 2022. Inflation will hover around 1¼ per cent over 2021 before increasing to 1½ per cent over 2022.Lowe said current monetary policy settings have delivered substantial aid to the economy by keeping borrowing costs low, and bond purchases made earlier this week have helped ensure the smooth functioning of the market.“To date, a cumulative $74 billion of government bonds issued by the Australian Government and the states and territories have been purchased under the initial $100 billion program,” he said.“A further $100 billion will be purchased following the completion of the initial program and the Bank is prepared to do more if that is necessary.”RELATED: Property prices rise at fastest pace in 17 yearsThe rapid growth in the property market is expected to continue on the back of record low interest rates, raising concerns that first home buyers could be shut out as property prices surge.But unlike the Reserve Bank of New Zealand, which recently agreed to consider housing affordability when setting monetary policy, the RBA won’t be sounding any alarms so long as lending standards remain sound.Last month, CoreLogic’s monthly home value index saw prices in Australia jump up by 2.1 per cent, marking the largest month-on-month change the property research firm has recorded since August 2003. Gains were distributed fairly evenly across the country, with regional markets posting average increases of 2.1 per cent and capital city markets rising by an average of 2 per cent.Analysts from the major banks are now confident we’ve passed the bottom of this property cycle, with Westpac the latest to upgrade its forecasts. It now predicts a 20 per cent increase in property prices over the next two years, which would see Sydney values rise by more than $200,000.This momentum will be supported by low fixed rates in particular. The latest ABS lending indicators show new fixed rate commitments for January 2021 were more than 200 per cent higher than they were before the RBA began its bond purchasing activities last year.According to research by Mozo, 29 per cent of the major banks’ mortgage books are now fixed, an increase of 12 per cent over the past financial year.Among lenders we track, the average 2-year fixed rate currently sits at 2.32% p.a., almost a full percentage point lower than the average variable rate of 3.29% p.a. While cuts to variable rates continue to flow through, lenders look to be competing mainly on the fixed rate front.Greater Bank currently occupies the top spot in our database, offering owner occupiers 1.69% p.a. (3.49% p.a. comparison rate*) on 1-year terms for its Great Rate Home Loan. Online lender UBank has also extended its UHomeLoan discount offer, which is among the lowest rates on the market. Owner occupiers who apply before 29 April 2021 can receive a 1.75% p.a. fixed rate (2.22% p.a. comparison rate*) on 3-years terms.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.

The Reserve Bank of Australia decided to leave interest rates unchanged at its first meeting of the year this afternoon. The cash rate currently sits at 0.1 per cent, where it has remained since November 2020.In his post-meeting statement, RBA Governor Philip Lowe said that while the path to recovery will be uneven, "there are better prospects for a sustained recovery than there were a few months ago."The Board forecasts GDP growth of 3½ per cent over both 2021 and 2022, but a backwards slide on the health front “would delay the recovery and the expected progress on reducing unemployment.”“On the other hand, it is possible that further positive health outcomes would boost consumer spending and investment, leading to stronger growth than is currently expected” said Lowe.The RBA slashed interest rates to emergency lows last year to shore up a struggling economy. It also launched a large scale bond buying program to bring down longer-term fixed rates, officially putting Australia on the quantitative easing path.To date, the RBA has purchased $52 billion worth of government bonds. It has not made any purchases in support of the 3-year yield target since early December.Lowe once again said the cash rate won’t increase for at least another three years, but the quicker than expected recovery has many analysts betting the Board will soon change its tune.While the unemployment rate remains elevated at 6.6 per cent, the number of jobless Australians continues to tick down. At last reading, employment rose by 50,000 people in December 2020 according to the ABS.The Board’s central scenario sees unemployment remaining at around 6 per cent at the end of the year and 5½ per cent at the end of 2022.

The Reserve Bank has opted to keep official interest rates unchanged at its latest policy meeting this afternoon. The cash rate currently sits at a record low 0.1%, where it has remained since early November."In Australia, the economic recovery is under way and recent data have generally been better than expected. This is good news, but the recovery is still expected to be uneven and drawn out and it remains dependent on significant policy support," said RBA Governor Philip Lowe in his post-meeting statement."In the RBA's central scenario, it will not be until the end of 2021 that the level of GDP reaches the level attained at the end of 2019. In the central scenario, GDP is expected to grow by around 5 per cent next year and 4 per cent over 2022."The central bank announced a number of changes to key policy rates last month, including a 15 basis point reduction to the cash rate, three-year bond yield target, and term funding facility rate.It also launched a quantitative easing program aimed at purchasing $100 billion worth of bonds with maturities of around five to ten years over a period of six months.So far, the RBA has bought $19 billion worth of government bonds and a further $5 billion of Australian government securities in support of the 3-year yield target. Its balance sheet has increased by around $130 billion this year.Lowe said the November package had already delivered substantial aid to the economy, and is helping to lower financing costs for borrowers and keep the exchange rate low. He also cautioned the government against withdrawing its fiscal stimulus, saying that while the economic outlook has picked up on news of a coronavirus vaccine, ongoing support will be necessary until it is widely available.

After weeks of foreshadowing, the Reserve Bank of Australia made the extraordinary decision to cut interest rates at its latest policy meeting this afternoon. The official cash rate now sits at 0.1% — the lowest it’s ever been.In his post-meeting statement, RBA Governor Philip Lowe said the move will help quicken the pace of economic recovery, and “the Board is prepared to do more if necessary.”"With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support the creation of jobs. Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago," he said.The RBA also announced a number of changes to key policy rates aimed at keeping borrowing costs low. This includes trimming the Board’s three-year bond yield target and term funding facility rate from 0.25% to 0.1%.The interest rate paid on exchange settlement accounts will also be cut from 0.1% to zero. This applies to commercial bank deposits held with the RBA. Typically, the Board keeps the exchange settlement rate a quarter of a percentage point below the cash rate, but since March it has been held at 0.1%.By reducing it to zero, the Board hopes to encourage banks to lend out their cash, rather than keep it idle in the RBA’s strongbox.The RBA will also purchase $100 billion of government bonds with maturities of around five to ten years, officially putting it on the quantitative easing path. These purchases will take place over the next six months, with the first auction to be held this Thursday."Under the program to purchase longer-dated bonds, the Bank will buy bonds issued by the Australian Government and by the states and territories, with an expected 80/20 split," said Lowe."The combination of the RBA's bond purchases and lower interest rates across the yield curve will assist the recovery by: lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise; and supporting asset prices and balance sheets.”More colour on the shape of economic recovery will be provided on Friday, when the RBA releases its quarterly statement on monetary policy.

The Reserve Bank of Australia looks poised to cut official interest rates by 0.15% next week, which would leave the cash rate at a record low 0.1%.In recent speeches the RBA has signalled a willingness to take the cash rate below its current setting while keeping it above zero. Speculation reached a fever pitch in the lead up to last month’s meeting but ultimately the Board decided against making a move.For Mozo’s banking expert Peter Marshall, November is almost certainly the month the RBA will opt for further easing.“It’s obvious that things are going to take a very long time to recover, and while the bank stood by to let the government have some clear air for the budget in October, it’s now ready to step in and support the budget measures,” he said.A number of economists have also backed a November cut. CBA chief economist Stephen Halmarick believes the Board will push further into the “conventional unconventional monetary policy space” next week. “This easing is expected to involve a cut in the three key interest rates – the cash rate target, the three-year bond yield target and the term funding facility target from 0.25% to 0.1%,” he said.“Critically, this easing of monetary policy is expected to be implemented at the same time as the RBA looks set to revise upwards their economic forecasts given the run of better economic data.”Westpac chief economist Bill Evans also anticipates a change in the bond purchasing program, though he does not expect the Board to set a specific quantity target.“It is already setting a price target for the three year rate. Fixing both price and quantity targets may lead to unexpected difficulties down the track,” he said. While the RBA's bias against negative interest rates has softened somewhat over the last six months, the possibility the cash rate will dip below zero remains unlikely.“There's no evidence that they have yet given such a move serious consideration, and they are likely to continue to rely on other methods of supporting the economy for some time yet,” said Marshall.

Despite speculation that an October rate cut was in the cards, the Reserve Bank has left official interest rates on hold in its meeting this afternoon. The cash rate remains at the historic low of 0.25%.“A recovery is now under way in most of Australia, although the second-wave outbreak in Victoria has resulted in a further contraction in output there,” said RBA governor Philip Lowe in his post-meeting statement. “Labour market conditions have improved somewhat over the past few months and the unemployment rate is likely to peak at a lower rate than earlier expected. “Even so, unemployment and underemployment are likely to remain high for an extended period. Wage and inflation pressures remain very subdued.”Lowe once again ruled out an increase to the cash rate until the outlook for inflation and employment is in line with the Board’s targets. According to past statements, this isn’t likely to be met for another three years.While the Board has shown a clear bias against negative interest rates, taking the cash rate below its current setting but above zero has been floated as one way to put the economy on a quicker path to recovery.Another option is a more traditional quantitative easing program, which would involve maintaining the current three-year yield target while also conducting purchases further out along the curve.As for the Board’s term funding facility, which received a boost following last month’s policy meeting, Lowe said it continues to support the flow of credit to households and businesses. So far, $81 billion in low-cost funding has been drawn from the facility.

While economic output in Australia saw a significant contraction in March and April, minutes from the RBA’s June meeting suggest the current downturn could be “shallower than earlier expected.” Australia’s relative success in containing the virus and the Federal Government’s multiple stimulus measures have been instrumental in protecting the economy from collapse, the minutes said. “Households that were already receiving welfare payments had additional payments, and the JobKeeper program and increased JobSeeker payments had supported incomes for others. In some instances, households had received more income than usual.”But there are still plenty of hurdles ahead, with the RBA warning that reduced consumer demand and appetite for investment could prolong the downturn.Unemployment will also remain elevated for come time, though a consensus is emerging that the number of job losses won’t be as severe as initially expected.“The contraction in spending in late March and April had been accompanied by significant job losses, with total hours worked falling by 9 per cent in April. Timelier payroll data suggested that the pace of job losses had slowed towards the end of April,” the minutes read.“In some of the industries that had been most affected by the restrictions on activity, the number of jobs had stabilised or increased a little, suggesting that the total decline in hours worked may be less than had previously been feared.”However, members noted that an unusual number of Australians who lost their job in April did not actively search for new work, obscuring the overall picture of unemployment. What’s more, the share of workers who are still on their company’s payroll but working zero hours has also increased.  “While some of these workers were likely to have been supported through the JobKeeper program, others would have been stood down without pay and may have become unemployed since then,” the minutes read.

In a senate inquiry today, Reserve Bank Governor Philip Lowe suggested that the JobKeeper payment could be extended beyond its September expiry date, or potentially even survive in a different form.While the current downturn is not as severe as initially projected, Lowe warned that the economic stimulus should not be phased out too early.“If we have not come out of the current trough of economic activity, there will be - or there should be - a debate about how the JobKeeper program transitions into something else,” he said.The Federal Government rolled out the wage subsidy in late March to help preserve the connection between companies and employees. It has repeatedly said the program is only temporary. But Lowe said there may be a push to keep JobKeeper around for those in particularly hard-hit industries, such as the tourism sector, which may be struggling to stay afloat for months or even years to come.RELATED: Who is eligible for the government’s support payments?Lowe admitted that the program was prepared at a time of extreme uncertainty during which a six month hibernation of the economy seemed like a very real possibility.While that belief hasn’t exactly been borne out, a massive blow has been dealt to Australians’ confidence. The shape and timing of economic recovery will depend on how quickly that confidence is restored.Unemployment also remains high, with the latest labour force data to come out described by the RBA boss as “shocking.” Nearly 600,000 people lost their jobs in April, and that number is expected to increase over the coming months. “We know from previous sharp economic downturns that there is scarring in the labour market. People fall out of jobs and then have trouble getting back in and then we have more long-term unemployment,” Lowe said.Right now, the real rate of unemployment is obscured by the number of people who are working zero hours but still on their company’s payroll, as well as those who have exited the labour force completely.A more useful picture is provided by the number of hours worked, which declined by 9% in April. The RBA expects it to drop further in May, though not as sharply.Lowe also spoke of the need for a reform agenda centred around creating a favourable climate for businesses to “expand, invest, innovate and hire people.” A big part of that will involve rethinking both the tax system, which Lowe claims is not “optimally designed for growth,” and our approach to regulation. For information about the assistance available to households and businesses, along with tips to keep your finances in good health amid the current crisis, browse our guide to coronavirus and your finances.