Interest Rate in Australia

Australia - Interest Rate

RBA holds its ground in July

At its monetary policy meeting on 6 July, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at the all-time low of 0.10%. It also left the target for three-year government bond yields at around 0.10%, and stated it will continue purchasing government bonds after the current purchase program expires in September in order to support low funding costs.

The decision was motivated by figures showing that inflationary and wage pressures remain moderate despite a stronger-than-expected recovery in both GDP and the labor market. Meanwhile, although short-term pandemic-related uncertainty persists, vaccination campaigns are well underway and the economy looks to have improved its ability to adapt to restrictions.

The Bank kept its dovish tone in its communiqué, reiterating that it will maintain the cash rate at its current all-time low until the labor market returns to full employment, wage growth accelerates substantially and actual inflation is comfortably within its 2.0%–3.0% target range, which it does not see until 2024. Additionally, it added that it will monitor the evolution of borrowing costs in the housing market in order to maintain supportive lending conditions. All of our panelists see the cash rate on hold at 0.10% for the remainder of the year.

The next monetary policy meeting is scheduled for 3 August.

Commenting on the possible outcome of the Bank’s next meeting, Robert Carnell, head of research for the Asia-Pacific region at ING, stated:

“The latest statement from the Reserve Bank of Australia leaves the date of the forward guidance on the first hike in the cash rate unchanged at 2024. But it looks as if they are preparing the ground for an adjustment to this guidance and other policies to bring them more into line with Australia's strong economic fundamentals.”

FocusEconomics panelists forecast the cash rate to end 2021 at 0.10% and 2022 at 0.12%.