• The official interest rate has been left at 0.10% after the Reserve Bank of Australia (RBA) convened its March meeting.
• It comes as speculation grows over when interest rates will eventually be hiked, but Governor Philip Lowe maintains they’re staying where they are.
• “For [a cash rate hike] to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest,” he said.
  
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The Reserve Bank of Australia (RBA) has, in a move universally expected, kept the official cash rate unchanged on Tuesday.

The central bank concluded its March meeting determined to keep rates low and maintain its ‘wait and see’ approach.

“While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago,” Governor Philip Lowe said. “Even so, the recovery remains dependent on the health situation and on significant fiscal and monetary support. Inflation remains low and below central bank targets.

“The current monetary policy settings are continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets.”

Lowe also addressed rising concerns over home prices and lending growth amid the low interest environment.

“Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak. Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates,” he said.

“For [a cash rate hike] to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

But while would-be homebuyers may wring their hands at house price growth, the RBA shouldn’t be concerned yet.

“Sydney and Melbourne are recovering from the impact of COVID-19, while prices in other capital cities haven’t exactly set the world on fire over the past five-to-ten years,” Indeed economist Callam Pickering said.

“Credit flows will understandably be watched closely by the Reserve Bank but a combination of low population growth, historically low wage growth and rising building approvals will provide a counterweight to low mortgage rates. If lending becomes too risky, macroprudential policies, rather than rate hikes, would be the most sensible way to curb excess.”

However, despite RBA rate decisions having become easy to forecast in recent months, speculation is growing over when the central bank will finally hike rates again.

While it’s expected interest rates will remain on hold for at least 12 more months, some economists are now suggesting they could move again in the second half of 2022.

“While the economy has recovered faster than expected, the RBA is still a long way away from meeting its inflation and employment goals, so a rate hike is still a long way away,” AMP Capital chief economist Shane Oliver said.

“That said, the faster than expected recovery will likely see the first hike occur earlier than the RBA’s expectation of no increase before 2024. It could come late next year or early 2023.”

The possibility however remains wholly dependent on whether the job market can be spurred into action by then.

“[A rate hike] could be as early as the second half of 2022 if the labour market continues to respond and prices continue to push upwards — particularly through the housing market,” Bankwest Curtin Economics Centre deputy director Rebecca Cassells said.

“Whether this activity will be enough to reach the 2% inflation threshold will remain to be seen, but it’s certainly more likely now than it was a month ago.”

But without the RBA’s language softening around its 2024 timeline, there’s still plenty of reasons it will leave interest rates where they are.

“The RBA has absolutely no justification based on the current economic environment to wind back any of its stimulus measures,” IFM Investors chief economist Alex Joiner said.

“I don’t expect it will contemplate such moves until the unemployment rate is at or below 5%.”

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