The Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold at 1.5%, following its board meeting on Tuesday. However, the relief for mortgage borrowers may be short-lived, with some experts warning that rate hikes aren’t far off.

The cash rate last shifted in August 2016, when it was slashed by 25 basis points to its current record low, following an earlier cut to 1.75% in May.

“Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease,” said RBA Governor Philip Lowe in an official statement. “In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades.”

The RBA is concerned about the growth in household debt, which has outpaced the much slower growth in household incomes. “The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans,” Lowe said.

Last week, John Edwards, a former RBA board member and current non-resident fellow at the Lowy Institute for International Policy, said interest rates may have to increase more than two percentage points over the next 24 months. 

Edwards said the current official cash rate was too low if the RBA was correct in its forecast that the Australian economy would improve over the next 12-18 months. He believes the cash rate could hit 3.5% by 2019.

Other analysts take a divergent view. Shane Oliver, chief economist for AMP Capital, said the RBA lacks confidence that the eastern capitals “have cooled enough just yet”.

“While at some point the RBA may talk about exiting easy money, causing a bit of premature excitement in the process, our base case remains that the RBA will leave interest rates on hold for the next year at least,” Oliver said in a client note. “But for the next year there remains more risk of a cut than a hike.”
 

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