Yahoo Finance RBA unveils May rates decision ahead of Federal Budget
The Reserve Bank of Australia (RBA) has left interest rates at a record low of 0.10 per cent, in line with expectations.
RBA Governor Philip Lowe has made clear the board is unlikely to hike rates until inflation and wages are boosted.
“Despite the strong recovery in economic activity, the recent CPI data confirmed that inflation pressures remain subdued in most parts of the Australian economy,” the RBA said.
“A pick-up in inflation and wages growth is expected, but it is likely to be only gradual and modest.”
Last month the annual rate of inflation edged up to 1.1 per cent, which came short of expectations.
Lowe reiterated that the bank is still aiming for inflation to rise back into the 2-3 per cent range before it considers hiking rates - something it doesn't expect to happen until 2024.
Housing boom
The news comes as those in the property market are keeping a watchful eye as the price of housing continues to rise.
“Housing markets have strengthened further, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers,” the RBA said.
“Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.”
Despite the bank keeping the official cash rate at a record low, several lenders have increased their four-year fixed interest rates.
Recent Finder analysis found that a 0.25 percentage point hike would cost the average mortgage holder an additional $26,330 in interest.
Australian house prices have soared by more than 500 per cent over the past 25 years but while capital values have grown, yields have fallen to all-time lows.
The RBA is keeping an eye on the property market
Economic recovery
Australia’s economic recovery remains on track with Lowe saying it has been stronger than the bank initially expected.
“This recovery is especially evident in the strong growth in employment, with the unemployment rate falling further to 5.6 per cent in March and the number of people with a job now exceeding the pre-pandemic level,” the RBA said.
“The global economy is continuing to recover from the pandemic and the outlook is for strong growth this year and next. The recovery remains uneven, though, and some countries are yet to contain the virus.”
This comes ahead of the Federal Government releasing the 2021 Budget next week.
So far, Treasury has announced a range of measures designed to cut costs for businesses and help get parents back into the workforce.
It is anticipated that the Government will unveil further tax cuts, a boost to aged care spending and tax concessions for small and medium sized businesses in its official budget release.
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