Skip to content

No interest rate hike before 2024? Yehaa!

Kitty and Miles Logo

This could be good news for borrowers. Maybe. The RBA still expects there won’t be an official rate rise until at least 2024, flying in the face of economists at major banks predicting an earlier rise.

The RBA has kept the cash rate on hold at a record 0.1% but adjusted other key policies, which have also lowered borrowing costs and supported the economy during the pandemic.

The RBA Board remains committed to maintaining highly supportive monetary conditions to stimulate employment in Australia and keep inflation sustainable within its 2-3% target range.

Economists at ANZ, Westpac, NAB and AMP expect the RBA will begin raising the cash rate in 2023 off the back of the continuing stronger-than-expected economic recovery. Commbank economists think it may be earlier – expecting the first rise in November 2022.

RBA governor Philip Lowe notes the Australian economy has bounced back earlier and stronger than expected from the pandemic. The situation has changed significantly from last March when the RBA introduced its three-year yield target to lower funding costs and reinforce the Board’s forward guidance about the cash rate.

This improvement has widened the range of plausible scenarios for the cash rate. But Mr Lowe made it clear the RBA was not hinting at rate increases in 2023 like other central banks.

Although the RBA had indicated there was a possibility the economic conditions for rates to rise could arrive earlier than 2024, its central expectation remained targeted to the year 2024.

So, what do you believe? It all hinges on strongly improved economic conditions. Given no-one can really confirm that all you can do is keep an eye on economic forecasts on a regular basis. There’s your crystal ball.

Here’s some other info that might prove valuable…


RBA adjusts other key policy measures

The RBA decided not to extend the three-year yield target beyond the April 2024 bond and maintained it at the current rate of 0.1%. Maintaining the target of 10 basis points for the April 2024 bond will continue to keep interest rates low at the short end of the yield curve and support low funding costs in Australia.

They’ve also announced a more flexible approach to quantitative easing. For those of you unaware of this term, here’s a quick definition:

Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities like Government Bonds from the open market in order to increase the money supply and encourage lending and investment. Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. It also expands the central bank’s balance sheet.

The RBA will continue purchasing government bonds after the current six-month program ends in early September but at a reduced rate of $4 billion a week until at least mid-November. Continuing monetary support will carry on as the country transitions from the recovery phase to the expansion phase. As outbreaks are contained and restrictions are eased, the economy will continue to bounce back quickly.

While the RBA and the Australian Prudential Regulation Authority don’t target housing prices, many are closely watching lending standards as property prices continue to rise. At the moment, there isn’t any evidence of deterioration in lending standards, but economists are watching carefully.

It’s also been observed that household credit growth has picked up. The RBA is hopeful that this credit doesn’t grow too quickly relative to incomes.

Despite the cash rate and variable mortgage rates being low, fixed mortgage rates for owner-occupiers have started to rise from low rates below 2%. Fixed rates are expected to carry on rising given the RBA’s term funding facility – a pandemic measure that provided low-cost funding to the banks, which expired at the end of June 2021.

Taking all this in, still the RBA remains firm that the rates won’t rise until mid 2024. So, get in and secure that fixed term and ride to interest rates while you can, because when they go up, they’ll really go up.