RBA announces rate decision for March 2021

RBA governor Philip Lowe said in his monetary policy decision statement that it has decided to maintain the current policy settings, including the yield on the three-year Australian government bond, as well as the parameters of the Term Funding Facility (TFF), and the government bond purchase program.

However, the RBA has brought forward bond purchases under the bond purchase program this week, with the bank willing to make more changes to its purchases if necessary amid significant rises in bond yield over the past few weeks.

In a statement explaining the central bank’s decision to hold rates in March, governor Philip Lowe said: “The bank remains committed to the three-year yield target and recently purchased bonds to support the target and will continue to do so as necessary.

“Also, bond purchases under the bond purchase program were brought forward this week to assist with the smooth functioning of the market. The bank is prepared to make further adjustments to its purchases in response to market conditions.”

Mr Lowe added that to date, a cumulative $74 billion of government bonds issued by the federal government and the states and territories have been purchased under the initial $100 million program.

“A further $100 billion will be purchased following the completion of the initial program, and the bank is prepared to do more if that is necessary,” Mr Lowe said.

Authorised deposit-taking institutions (ADI) have drawn down $91 million under the TFF and have access to a further $94 million, he said.

Mr Lowe also addressed the property market, and observed that housing credit growth to owner-occupiers has increased, but investor and business growth has remained weak.

He added that lending standards have remained strong, and said that “it is important that they remain so in an environment of rising housing prices and low interest rates”.

AMP Capital chief economist Shane Oliver said that if property market prices continue to rise (as it has been of late with a near 18-year high in price gains in February) increasingly led by investors, it could prompt the RBA and the prudential regulator to re-tighten lending standards from later in 2021.

"We expect action to do so ahead of the first rate hike. This is likely later this year or through 2022," Mr Oliver said.

The decision to hold the official cash rate is in line with expectations as the RBA has made clear in the past that it would not increase the cash rate for at least three years, and has indicated that the current rates could remain in place beyond three years, or at least until there is a lower rate of unemployment and a return to a “tight” labour market.

After cutting the cash rate to a record low of 0.10 per cent in November 2020, the RBA held rates at its current level in December and February.

While announcing its rate decision in February, the RBA also announced that it had expanded its quantitative easing program by purchasing an additional $100 billion of bonds.

Commenting on the RBA’s decision, Finsure managing director John Kolenda said that while the RBA has held the cash rate at its current level as expected, pressure on global funding costs and the uptick in the domestic economy since the COVID-19 recession could “bring forward” the RBA’s forecast for an increase in official interest rates.

“It is appearing more likely that we will see a rise in interest rates before the predicted 2024 forecast as pressure mounts on global funding costs,” Mr Kolenda said.

“The Australian dollar’s continued upward movement also has many questioning the RBA’s 2024 prediction. Economic results over the next two quarters will provide greater clarity on when interest rates will rise, with markets predicting something could happen over the coming 12 months.”

Mr Kolenda noted that the coronavirus pandemic has resulted in “disparity” in economic results across different industries, adding that while some parts of the economy have rebounded better than expected, other sectors have remained subdued due to the impacts of the health crisis.

He added that economic performance would depend on the impact of the vaccine rollout and the return to pre-COVID travel in Australia.

“Should there be signs and positive economic results across the travel and airline industries, then we are certain to see rates rises following,” Mr Kolenda said.

“The challenge ahead will be managing the road to recovery and the imbalances.”

Mortgage Choice CEO Susan Mitchell said the RBA’s decision has come amid positive economic data, with home buyer “fear of missing out” sentiment, low interest rates and government support building momentum in the property market.

“The latest data from CoreLogic reveals that national dwelling values continue to trend up, with home values surging 2.1 per cent in February, the largest month-on-month increase in 17 years,” she said.

“Housing finance data from the Australian Bureau of Statistics suggests the current housing boom shows no sign of abating, with loan approvals surging 10.5 per cent in January. This is consistent with what we’re seeing at Mortgage Choice, with our February home loan applications reaching the highest monthly level since 2017.”

She added that improved economic conditions have increased confidence in consumers, citing the Westpac-Melbourne Institute of Consumer Sentiment index, which increased by 1.9 per cent in February.

“Although we’ve seen continued improvement in the jobs market, the unemployment rate remains below the RBA’s target and low inflation persists, which should keep the cash rate on hold for some time,” she concluded.

Loan Market executive director of network success Andrea McNaughton said that while there was significant momentum in the market, the RBA would wait until this turned into a longer-term trend before changing the cash rate.

“There’s certainly a lot of enthusiasm in the marketplace coming out of COVID-19, but the RBA will want to see if this sentiment is maintained over a longer period before tweaking monetary policy,” she said.

Home Loan Experts CEO Alan Hemmings said that the RBA’s decision to hold rates is “no surprise”, and added that with the end of JobKeeper looming on the horizon and 90,000 home owners still deferring loan repayments, there is still uncertainty in the market.

“Given the current property price spike and the lack of stock, there are still too many variables for clients who are going through the approval process, and any changes now could spell disaster for those potential home owners," he said.

[Related: RBA announces February cash rate decision]