RBA says it will be patient when it comes to next rate rise

The property industry got the most re-assuring words it could hope for when the RBA met today. The RBA will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This was the message from the central bank after its Cup Day meeting, although it did drop the 2024 mention that has been its time line for the next rate rise. For the RBA to start thinking of raising rates it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. "This is likely to take some time," it advised. "The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages growth," it advised. The RBA governor Dr Philip Lowe noted housing prices are continuing to rise in most markets and housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors. The RBA welcomed APRA's recent decision to increase the interest rate serviceability buffer on home loans. "It is important that lending standards are maintained at a time of historically low interest rates," it noted. The Australian dollar was lower in the wake of the RBA decision. Speaking about the decision, CEO of Mortgage Choice and Smartline, Susan Mitchell suggested the RBA's decision to unwind its previous guidance on the yield curve control, a key COVID stimulus measure, certainly impacts home loan interest rates. "However the extent remains to be seen, noting that the central forecast for underlying inflation to be no higher than 2 ½ percent at the end of 2023 with only gradual increases in wages growth. "This is likely to keep the property market buoyant throughout next year,” said Ms Mitchell. REA Group director of economic research, Cameron Kusher said, “the RBA seemingly abandoned its 3-year Government bond target, which saw bonds shift much higher than their 0.1% target. The repercussions of this for housing is that interest rates, particularly new fixed rates, may see further increases over the coming weeks and months.” Ms Mitchell said, “We’ve already started seeing a lot of small rate tweaks on home loan interest rates, mainly on long-term fixed rate home loan products and some discounting on variable rate home loans, but today’s announcement suggests that more significant changes are on the horizon.”