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RBA makes rate decision as banks rake in $4 million

Lucy Dean
·5-min read
RBA Governor Philip Lowe, aerial view of Australian houses, Australian money close-up.
RBA Governor Philip Lowe has handed down the official interest rate for February. Images: Getty

The Reserve Bank of Australia has kept the official interest rate on hold at 0.10 per cent in its first meeting for 2021 as home values hit record highs.

The decision to hold came as no surprise to market commentators and economists, with most predicting the RBA won’t be changing rates any time soon.

And according to a survey done by The Conversation, the next increase to interest rates could be as far away as 2026 or longer.

"The RBA have been clear in their message that the official cash rate will remain at its current level for some years, although progress to full employment may occur more quickly than the market is currently pricing. An increase in rates in around two years is quite plausible,” Bendigo and Adelaide Bank analyst David Robertson told the Finder interest rate survey.

Angela Jackson from Equity Economics agreed, noting that any rate movements are largely contingent on international borders reopening.

"The low-interest-rate environment is a major factor contributing to house price growth across the board and this is an important element in the nation's overall economic recovery,” added Laing+Simmons director Leanne Pilkington.

Watch: How to take control of your savings rates and loans this year.

“The Reserve Bank is well aware of the impacts of a rate change on house prices and has suggested rates may stay steady for the next few years."

The latest data from CoreLogic on Monday revealed that Australian home values have now exceeded their pre-pandemic highs, recording growth of 0.9 per cent in January alone.

And according to the Finder survey, this pricing trend could see home values in Sydney surge as much as $53,305 this year to hit an average price of $1.03 million.

Outlook improving, RBA announces $100 billion bond plan

The outlook for the global economy is improving as vaccination programs around the world kick into gear, RBA Governor Philip Lowe said.

“While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago,” Lowe said.

“That recovery, however, remains dependent on the health situation and on significant fiscal and monetary support. Inflation remains low and below central bank targets.”

The RBA committed to purchase an additional $100 billion in Australian Government and state and territory government bonds, once the current bond purchase program concludes in April.

Lowe said the bank will buy these bonds at a rate of $5 billion a week.

The RBA predicts Australian GDP will grow by 3.5 per cent over 2021 and 2022 and to hit its end-2019 level by mid-2020.

“Even so, the economy is expected to operate with considerable spare capacity for some time to come,” Lowe added.

“The unemployment rate remains higher than it has been for the past two decades and while it is expected to decline, the central scenario is for unemployment to be around 6 per cent at the end of this year and 5.5 per cent at the end of 2022.”

Banks making millions in ‘perfect storm’ for borrowers

The RBA’s decision today comes amid calls for Australia’s lenders to pass along the full rate cuts from November and earlier.

According to Mozo analysis, the big four banks are making $4 million a day in extra interest by not passing on the November cut to variable rates.

Image: Mozo
Image: Mozo

And by delaying the effective dates of interest rate cuts since the RBA began cutting rates in March 2020, the big banks have made $97 million.

Image: Mozo
Image: Mozo

“With tens of thousands of home loan customers still yet to resume regular mortgage payments, the big banks’ failure to pass through the RBA’s November rate relief to variable home loan customers will only add to their borrowers’ ever increasing loan amounts,” Mozo director Kirsty Lamont said.

And as JobKeeper, JobSeeker and banks’ mortgage holidays come to an end, Lamont said this could present the “perfect storm” for many borrowers.

“With a number of the banks already indicating some customers won’t make it through the pandemic, their decision on whether or not to pass the rate cut could quite literally be the difference between keeping a roof over your head or being kicked out in the cold,” she said.

The average variable rate on Mozo’s database is 3.29 per cent, down from 3.34 per cent in November. However, the leading rate is 1.99 per cent through Reduce Home Loans.

Among Australia’s four major banks, CommBank and Nab have the best variable rate a 2.69 per cent.

Savings woes

With interest rates at record lows, and likely to stay there for a while, Australian savers have been urged to consider shopping around.

NAB cut savings rates on two of its popular accounts by 0.15 per cent on Friday, while 23 banks have cut savings rates in 2021 alone - including CommBank and Westpac.

According to Mozo analysis, that’s taken the average ongoing savings rate to 0.44 per cent, while the highest is just 1.35 per cent with ING. Young Australians can still access Westpac’s 3.00 per cent savings rate.

Image: Mozo
Image: Mozo

“Cutting savings rates ahead of RBA meetings has become an all too familiar habit for the big banks and it’s a habit that’s costing the nation’s savers dearly,” Lamont said.

“As ever with personal finance products your best option is to compare all rates and move your money to where you can get the best value.”

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