Australia’s national exchange rate will remain unchanged until at least 2024, with the Governor of the Reserve Bank of Australia (RBA) recommending consideration of other ways to cope with rising house prices.
Speaking at a charity event for the Anika Foundation, RBA Governor Dr Philip Lowe explained the effect of the Delta outbreak on Australia’s economy and monetary policy. While Dr Lowe acknowledged that Australia’s economy is currently in shock and Delta is likely to delay the country’s economic recovery, the shock is only expected to be temporary.
With that in mind, the RBA intends to keep the cash rate record low for now, alongside its other monetary policy measures. According to Dr Lowe, the RBA board will not seriously consider raising the cash rate until “real inflation is durably within the target range of 2-3 percent.” .
“It won’t be enough for inflation to cross the 2% line for a quarter or two. We want to see inflation hovering around the middle of the target range and have reasonable confidence that inflation will not drop below the 2-3% range. Our judgment is that this condition of increasing the cash rate will not be met before 2024. ”
Dr Lowe added that he expects it to take some time for wage growth to rise enough to meet the inflation target, and he also finds it difficult to understand why the markets expect rate increases in 2022 and 2023.
Regarding house prices, Dr Lowe said raising the cash rate to cool the housing market was “not on our agenda”. While higher interest rates could lead to lower house prices, they would also mean fewer jobs and lower wage growth, which Dr Lowe said he saw as “a bad compromise. under the current circumstances “.
Dr Lowe added that in order to help maintain the sustainability of household borrowing, the RBA and the Board of Financial Regulators “are discussing possible regulatory measures if lending standards deteriorate or credit growth accelerates. too much”.
However, Dr Lowe suggested that instead of looking at the cash rate or restrictions on loans, it might be more effective to address issues related to other factors affecting house prices, including:
- The design of Australia’s tax and social security systems;
- Urban planning and zoning restrictions;
- The type of housing that is built, and;
- The nature of Australia’s transportation networks.
Despite maintaining the cash rate, Australian banks and mortgage lenders have reduced interest rates on off-cycle home loans relative to the RBA. While most of the competition was in fixed rates earlier this year, lenders recently started competing for the refinancing market (the Australian Bureau of Statistics set a record high $ 17.22 billion in refinancing activity in July 2021) through lower variable interest rates.