The Reserve Bank of Australia (RBA) has kept the official interest rate on hold at its ultra-low 0.10 per cent for June as the property market continues to surge higher.
The national house price index grew 2.2 per cent over May, with nearly all regions experiencing growth over the last three months.
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CoreLogic research described this as an “absolute rarity”, but added that it’s unlikely the central bank will use interest rates as a lever to cool the market.
Most experts (76 per cent) agree the central bank won’t move rates higher until at least the fourth quarter of 2022.
"While the economic recovery is faster than expected, the RBA’s conditions for a rate hike are still far from being met,” AMP Capital chief economist Shane Oliver told the Finder interest rate survey.
Australian unemployment is at 5.5 per cent, but Reserve Bank Governor Philip Lowe has said the bank wants to achieve “full employment”, or an unemployment rate below 5 per cent.
Inflation is currently also at 1.1 per cent, well below the 2-3 per cent target.
“The jobs market is still a long way from full employment, wages growth at 1.5 per cent is way below the 3 per cent plus pace necessary to sustain 2-3 per cent inflation and in any case inflation is still well below its target zone. So a rate hike remains some time off,” Oliver said.
Current inflation forecasts indicate that it won’t be within the central bank’s target before 2023, Equity Economics’ Angela Jackson added.
However, she said emerging labour shortages may force the bank to lift rates earlier.
COVID outbreaks an 'ongoing source of uncertainty': Lowe
The RBA expects Gross Domestic Product to grow by 4.75 per cent in 2021 and another 3.5 per cent in 2022.
However, the potential for significant outbreaks will remain a threat to these forecasts until more of the population is vaccinated, Lowe said in his policy decision.
He added that while employment has improved more than expected, stagnant wage growth and inflation remain a challenge.
"While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and modest," he said.
Higher home loan interest rates on the horizon
Even as the RBA remains firm in its decision to keep rates on hold, lenders are preparing to hike.
As of Tuesday morning, no lenders offer four-year fixed rates below 2 per cent, as banks prepare for the end of the RBA’s term funding facility.
The term funding facility is expected to expire at the end of June, essentially cutting off one flow of cheap credit for Australia’s banks.
"The Reserve Bank appears to be sticking to its previously stated plan to leave rates low until 2024. More pressing is the coming conclusion to the cheap finance scheme the RBA made available to the banks to soften the impact of the pandemic,” Laing+Simmons director Leanne Pilkington said.
“With this scheme set to end next month, we can expect others to follow the Commonwealth Bank’s lead and start adjusting their fixed terms upwards."