After a year of historic decreases, the Reserve Bank of Australia (RBA) Board has decided to keep the cash rate on hold at a record low of 0.1 per cent at its December meeting, with the expectation that rate is unlikely to lift for the next three years.
“Given the outlook for both employment and inflation, monetary and fiscal support will be required for some time,” RBA Governor Philip Rowe said.
“For its part, the Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.
“For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market.
“Given the outlook, the Board is not expecting to increase the cash rate for at least three years. “
CoreLogic’s Head of Research Tim Lawless has labelled it a ‘wait and see’ policy.
“From a housing market perspective, home buyers are clearly responding to the unprecedented levels of stimulus available,” Mr Lawless wrote.
“With interest rates set to remain at these record lows for an extended period of time, attention is already focusing on how to manage associated risks of an ‘over-heated’ housing market while at the same time allowing the economy to benefit from the stimulus.
“Rising asset prices are a logical outcome of such low interest rates, and hopefully we see the wealth effect flowing through to other areas of the economy as households lift their spending.
“No doubt regulators and policy makers will be watchful for excessive exuberance in the housing sector; higher household debt levels or a rise in riskier types of lending could trigger a regulatory response.
“Previous macroprudential interventions have had an immediate dampening effect on housing market conditions.”
