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RBA Rates Update Apr 22

05.04.22 | Marc Barlow | Reserve Bank Announcements

RBA holds cash rate at 0.1% despite inflation concerns

The RBA has resisted increasing the 0.1% cash rate after today’s monthly board meeting, despite worries over rising inflation.

The RBA reiterated today that it will not increase the super-low 0.1% cash rate until actual inflation is sustainably within the two to three percent target range.

‘Inflation has increased sharply in many parts of the world,’ noted the RBA today.

‘The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.

‘Inflation has picked up and a further increase is expected, but growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target.’

So, no change. Interestingly, though, it was only a year ago that the RBA was saying it was plausible rates would remain on hold till 2024.

But much has changed since then.

The Russian war in Ukraine has affected global energy prices, which hit an eye-watering $2.30 a litre at some Aussie pumps in recent weeks (though the Federal Govt in response has slashed excise tax on petrol).

Add the effects of devastating floods on Australia’s east coast (causing the cost of fruit and vegetables to soar) plus residual issues around supply chains due to COVID-19, and this is why many Australians are feeling the pinch.

With the consumer price index (CPI) at 3.5% and the underlying inflation rate 2.6%, it’s a policy balancing act as the RBA tries to anticipate how long this economic storm will last.

Factor in the US Federal Reserve and Bank of Canada lifting rates in recent weeks as they contend with rising inflation — similarly New Zealand, which has aggressively lifted rates in recent months — and rate rises are a hot topic in Australia.

Do the RBA lift the rates or hold off?

With Australian household debt second highest in the world behind the Swiss, rising rates could be a serious financial hit to many Australians.

When it comes to rates, however, the RBA rarely takes knee-jerk decisions on fluctuating economic data or market speculation.

However, it has to remain agile to changing economic conditions, as it explained today.

‘Inflation has increased in Australia, but it remains lower than in many other countries; in underlying terms, inflation is 2.6 percent and in headline terms it is 3.5 per cent.

‘Higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters, with an updated set of forecasts to be published in May.’

That said, RBA Governor Dr Philip Lowe’s speech at The Australian Financial Review Business Summit last month did nothing to douse the rate rise talk.

He told a gathering of financial heavyweights: “We can be patient in a way that countries with substantially higher rates of inflation cannot. Given the outlook, though, it is plausible that the cash rate will be increased later this year.”

Sounds like the RBA boss is having a bet each way, and who could blame him given the global economy’s upheavals this year?

Fortunately, Australia has a stable financial system. This stability is in part due to the RBA’s role in applying balanced monetary policy based on its market forecasting.

Which is why higher than expected inflation numbers in recent months won’t spook the RBA – for now, anyway.

‘The Board’s policies during the pandemic have supported progress towards the objectives of full employment and inflation consistent with the target.

‘Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs.

‘The Board will assess this and other incoming information as it sets policy to support full employment in Australia and inflation outcomes consistent with the target.’

Inflation worries aside, housing costs remain astronomical — despite some levelling off of prices in Sydney and Melbourne — while the cost of borrowing money remains very low.

So if you have a mortgage, let Mortgage Broker Group do the hard work in finding lender deals that fit your current financial outlook.

We are an accredited member of the Mortgage and Finance Association of Australia (MFAA) and have a reputable track record over 20 years, working with a wide range of lenders to negotiate great deals for our clients. So why not contact our team for smart advice and guidance.

We have several convenient locations, too. And for a COVID-friendly option, there is also video conferencing.