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Experts weigh in on the Reserve Bank of Australia’s rate-hold

On Tuesday afternoon, the Reserve Bank of Australia (RBA) announced the official cash rate was on hold, to mixed reactions.

Economists and industry leaders have weighed in on the RBA’s announcements on social media, with many using Twitter to share their opinions.

Economist and Monash University lecturer, Dr Isaac (Zac) Gross says the under-covered aspect of the RBA is the change in approach and tone to hitting the target band.

“We are, at the aggregate level, basically back to the pre-COVID economy. But instead of the 2019 hand wringing, the 2021 RBA is being much more open about its desire to be greater than two per cent,” Dr Gross wrote on Twitter.

“Was there some outside pressure that pushed them to change? Perhaps most importantly, how widespread is it? It Sounds like Phil Lowe has clearly changed his tone, but what about the rest of the board?”

Real Estate Australia (REA) Group executive manager Cameron Kusher questioned why the RBA was slow to put an emphasis on wage growth.

“Wage growth and inflation is really important now, according to the RBA. Why weren’t they so important pre-COVID?” Mr Kusher wrote.

Dr Gross replied in the comments: “Indeed. Why taper now when you don’t expect inflation to be above the target over the horizon?”

“Good to hear the RBA say they’ve been below their inflation target for ‘too many years’,” Mr Kusher wrote in a second tweet.

IFM Investors chief economist Alex Joiner explained the RBA were seemingly waiting to see the rate of inflation, rather than jumping in early.

“Seen some now talking about hikes before 2024 because the RBA is now data dependent, we already got that from [Guy] Debelle. The nuance now is it wants to see material upside surprises on wages and inflation, as a catalyst to change policy course,” Mr Joiner wrote.

ABC business reporter Michael Janda suggested the RBA will lift interest rates in late 2023, around one year after the Reserve Bank of New Zealand (RBNZ) does so, despite official forecasts.

“The RBA is really not keen to lift interest rates in a hurry. While I get the logic of Commonwealth Bank’s November 2022 rate rise forecast, I think late 2023 is probably more realistic,” Mr Janda tweeted on his personal account.

“Asked RBA Governor Philip Lowe why, if Australia has had one of the best economic recoveries from COVID, other central banks are discussing rate rises in 2022/23 and the RBA not until 2024. Dr Lowe said ‘Australia has underperformed on wages and inflation both before and during pandemic’.”

Mr Gross replied in the tweet’s commenting, explaining: “we had the weakest economy before the virus hit”.

Judo Bank economic advisor and EQ Economics managing director, Warren Hogan shared a similar sentiment to Mr Janda.

“The RBA will not contemplate moving away from zero rates until wages/inflation are sustainably on target. What is interesting is how little their views on wages/inflation have changed despite an acute imbalance in the demand and supply of labour in Australia right now,” Mr Hogan wrote on Twitter.

He went on to add he “didn’t like” the RBA’s assumptions about skilled immigrants alleviating shortages, since the Federal Government recently cut arrivals into Australia.

“RBA did very little to alter monetary conditions in Australia yesterday. The three-year fixed rate has shifted up a little but who cares about fixed rates when the RBA says the variable rate will not move for three years. The reduction in QE simply matches lower bond supply,” he continued in another tweet.

However, Centre for Independent Studies chief economist, Peter Tulip believed the July press conference was helpful.

“If you accept the logic of past RBA decisions, then today’s decision was sensible and well explained. The press conference was useful (for many reasons) and I hope this becomes a regular occurrence,” he wrote on Twitter.

CoreLogic Asia Pacific research director, Tim Lawless has not shared his personal views on social media, but did provide a media statement.

“From a credit policy perspective, a more substantial rise in investor activity, a further rise in household debt or any material slip in lending standards could be the trigger for tighter credit policies,” Mr Lawless said.

“The RBA has again noted they will be monitoring trends in housing borrowing carefully to ensure lending standards are being maintained.

“In the meantime, as housing values rise more in a month than household incomes are rising in a year, it’s likely that affordability constraints and higher supply will gradually slow activity and price growth across the housing market.

“If credit tightening policies are implemented, or interest rates shift higher, there will be a potentially sharper slowdown.”

Home Loan Experts CEO Alan Hemmings also shared his own commentary via media release.

“Despite a resilient Australian economy during COVID-19, even with ongoing lockdowns, and green shoots in wage growth, it was not surprising the RBA didn’t move to increase the cash rate,” Mr Hemmings said.

“Property prices are still growing at a very fast pace and although inflation is below the sustainable 2-3 per cent target zone, speculation is building around when the RBA will finally make the call.

“Even if the central bank holds off on increasing interest rates until 2023/24, there could be a perfect storm coming as most borrowers who fixed their rates over the last six months roll onto variable rates at that time.

“While the lenders have protected themselves with serviceability buffers, it will be borrowers who may have overextended themselves that will suffer.”

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Jessamy Tredinnick

Jessamy Tredinnick was the news journalist for Elite Agent Magazine from June 2021 - October 2021. For current stories, news alerts or pitches, please email [email protected]