RBA adamant on not lifting interest rates before 2024

Reserve Bank of Australia

The RBA minutes of its board meeting stuck to the script that the central bank won’t be lifting the cash rate until inflation is sustainably within its two to three per cent target

The Reserve Bank of Australia remains adamant that it won’t be lifting interest rates before 2024, but financial markets believe it will be earlier in the face of rising inflation pressures globally.

That risk was brought close to home on Monday when New Zealand reported an inflation spike of close to five per cent – its highest level since 2011 – raising the prospect of another interest rate rise by the Reserve Bank of New Zealand.

Australian retail banks are responding to higher bond market interest rates, with Westpac increasing its two, three, four and five-year fixed rate home loans by 0.10 per cent, following a similar move by the Commonwealth Bank.

Fixed-rate loans are priced against bond market yields, while variable mortages are influenced by the RBA’s cash rate.

Financial comparison website Canstar says in the past week alone, five providers have hiked 38 fixed rates, suggesting that the tide is turning on ultra-low fixed rate borrowing.

The recent trend in fixed rate hikes reinforces that markets are pricing in interest rate increases for some time in 2023, Canstar’s Steve Mickenbecker says.

The emergence of inflation around the world for the first time in years is clearly signalling a shortening horizon to higher rates across the board, he says.

However, the RBA minutes of its October 5 board meeting released on Tuesday stuck to the script that the central bank won’t be lifting the cash rate until inflation is sustainably within its two to three per cent target.

It still does not expect that to occur before 2024.

The minutes said that underlying inflation pressures in Australia were more moderate than in other advanced economies.

This reflected a range of factors, including the relatively slow rate of wages growth in Australia, the minutes said.

While it was possible that underlying inflationary pressures in Australia could build more quickly than currently envisaged, the central forecast scenario was still that domestic inflation would pick up only gradually over the medium term, the minutes said.

Treasurer Josh Frydenberg is confident the Australian economy will rebound strongly by the end of the year and into 2022 from the expected economic contraction in the September quarter caused by lockdowns.

Backing his optimism was the sixth straight weekly rise in consumer confidence.

The ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – increased 1.3 per cent in the past week, buoyed by the reopening of Greater Sydney and the imminent easing of restrictions in Melbourne.

Confidence has risen seven per cent since early September and stands at its highest level since early July.

Mr Frydenberg told an online Australian Chamber of Commerce and Industry conference Queensland’s plan to open borders in December was also significant.

That will give confidence to those tourism businesses and it will give confidence to the customers from the southern states that typically make their way north for a summer holiday, the treasurer said.

The RBA’s central scenario is that the economy will return to its pre-Delta path by the second half of 2022.

Nonetheless, members acknowledged that the recovery was likely to be uneven across the economy and that uncertainty would be a feature of the outlook for some time yet, the minutes said.

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