The Reserve Bank for Australia (RBA) has held the cash rate steady at 0.10% for almost a year now, with the last change taking place in November 2020.

This decision was highly anticipated by economists, as RBA Governor Dr Philip Lowe has repeatedly maintained that the cash rate will not rise until inflation and wage growth are 'sustainably' within the 2 to 3% target range.

Dr Lowe said wage and price pressures remain 'subdued'.

"In underlying terms, inflation is running at around 1.75% and wages, as measured by the Wage Price Index, are increasing at just 1.7%," Dr Lowe said.

The RBA does not forecast a rate rise until 2024, but many economists predict it could rise sooner than this.

Commonwealth Bank (CBA) economists have forecasted the first hike to come into effect in November 2022, 'well ahead' of the RBA's 2024 timeline.

Additionally, ANZ economists have predicted that the official cash rate could rise to 0.50% in 2023, with wage growth and inflation forecast to sustainably hit the 2-3% band by late 2022. 

Despite the ongoing low central bank cash rate, new research from Aussie revealed there has been more than 1,000 home loan interest rate changes since November 2020.

According to the findings, there has recently been a strong uptick in lenders raising their fixed rates.

Calls for lending regulation as credit growth surges

House prices are continuing to rise, but Dr Lowe references declines in some markets due to virus outbreaks.

"Housing credit growth has picked up due to stronger demand for credit by both owner-occupiers and investors," Dr Lowe said.

Housing credit grew by 8.1% annualised over the three months to August - the fastest three month pace since 2010.

The Council of Financial Regulators is currently in talks about the risks of rapid credit growth at a time with historically low interest rates.

"In this environment, it is important that lending standards are maintained and that loan serviceability buffers are appropriate," Dr Lowe said.

Callam Pickering, APAC economist at Indeed, said that macroprudential policies could be used to curb risky lending, and that in past use they have been quite effective.

"Macroprudential policies, if necessary, are certainly preferable to raising the cash rate prematurely," Mr Pickering said.

"Raising rates to stunt house price growth, at the expense of the broader economy, would be misguided."

A look across the ditch 

The Reserve Bank of New Zealand (RBNZ) was widely tipped to raise its official cash rate, or OCR, at its last meeting.

As of August, RBNZ's cash rate was held at 0.25%.

Any potential rate rise was delayed due to the latest spate of Covid lockdowns hitting the country, particularly Auckland.

Despite this, a new 'Ready Reckoner' models potential cash rate scenarios based on recent New Zealand economic data.

Based on the latest data, the 'Ready Reckoner', forecasts an OCR of 2.2% in the third quarter of 2023, according to Westpac IQ.

This would be 195 basis points, or 1.95%, higher than it is now.

"The latest Covid lockdown is hard to interpret from a Ready Reckoner point of view," the Westpac IQ report said.

"What actually matters here is the output gap relative to potential. Lockdowns lead to a sharp drop in both actual and potential GDP, and experience has shown that both bounce back quickly once restrictions are lifted."

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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Important Information and Comparison Rate Warning

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