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<p>Almost three-quarters of variable borrowers who asked for a rate cut, got one, a new survey has found.&nbsp;</p>

<p>In a RateCity.com.au survey of over 1,000 mortgage holders, of those on a variable rate, 52 per cent haggled with their bank for a lower rate. Over 73 per cent of these people were successful in getting at least one rate cut.</p>

<p>A rate reduction of 0.25 per cent could save the average mortgage holder $1,241 in interest after one year and $3,656 after three years. This is based on a $500,000 loan balance with 25 years remaining.</p>

<p>While the majority of changes to fixed rates in the last two months have been hikes, the opposite is happening in the variable rate market.&nbsp;</p>

<p>[smartcode_project:default project_id=29048 project_image_fid=151675]</p>

<p><strong>RateCity.com.au home loan database analysis:</strong></p>

<ul>
	<li>49 lenders have cut at least one variable rate in the past two months.</li>
	<li>10 lenders have hiked variable rates in that time.</li>
	<li>The vast majority of variable rate cuts are reserved for new customers, not existing ones.</li>
</ul>

<p>RateCity research director, Sally Tindall, said while the RBA is not expected to move the cash rate tomorrow, one phone call could potentially save the average variable rate mortgage holder thousands.</p>

<p>&ldquo;Variable rates are at record lows, however, most of these deals are reserved for new customers, not existing ones, unless you specifically ask,&rdquo; she said.</p>

<p>&ldquo;A lot of people think a handful of basis points won&rsquo;t make much of a difference, but if the discount is permanent, then the savings can potentially run into the thousands in just a few years.&quot;</p>


While the majority of changes to fixed rates in the last two months have been hikes, the opposite is happening in the variable rate market

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Three out of four mortgage holders who asked for a rate cut, got one: RateCity 

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<p>The RBA kept the official cash rate on hold, but that hasn’t stopped banks from moving home loan rates.<br>
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While lenders have made a flurry of cuts to 2- and 3-year fixed rates in the last month, there has been an increase in the number of lenders hiking 4-year fixed rates.<br>
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Analysis of the RateCity.com.au database shows 11 lenders have raised 4-year fixed rates, including CBA, Bendigo Bank and Aussie Home Loans, while only two have cut them.<br>
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So why are 2-year fixed rates still dropping and 4-year rates rising?</p>

<p>[smartcode_project:default project_id=2772]<br>
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The RBA is helping facilitate the ultra-low fixed rates, in part, via its term funding facility, which allows banks to borrow money at a three-year fixed rate of 0.10 per cent.<br>
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Over the last month, the majority of one- to three-year fixed rate changes have been cuts, not hikes, as lenders make the most of the low-cost funding available.<br>
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However, in the last month the majority of four-year fixed rates changes were in the opposite direction as some banks start to factor in a likely rise to the cash rate in 2024 and the end of the RBA’s term funding facility on 30 June this year.<br>
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The big question is whether Westpac will hike its four-year rate. Australia’s second largest bank currently has the lowest four-year fixed rate in the market. Hiking this rate could lose the bank its competitive edge in this category.</p>

<p>[smartcode_project:default project_id=26730]<br>
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Watching these four-year rates come off the table has some people panicked they will miss the bottom. Just because these rates could be soon rise, doesn’t mean you should rush out and fix for the next four years.<br>
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If you are looking to refinance, work out what type of mortgage suits your finances. </p>

<p>Then shop around for a competitive rate, not the other way around.</p>

<p>Sally Tindall is RateCity.com.au research director</p>
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Work out what type of mortgage suits your finances, then shop around for a competitive rate, not the other way around

Why are 2-year fixed rates still dropping and 4-year rates rising? Sally Tindall

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<p class="legacy">EXPERT INSIGHT</p>

<p>After years of repeatedly <a href="https://theconversation.com/vital-signs-yet-another-year-of-steady-rates-whats-the-point-of-the-rba-inflation-target-110574">missing its inflation target</a> through too timid monetary policy, in the past week the Reserve Bank has decided to get tough.</p>

<p>Not only did it hold its closely watched <a href="https://rba.gov.au/statistics/cash-rate/">cash rate</a> target steady at 0.10% at Tuesday’s board meeting, it ramped up its efforts to defend its separate 0.10% target for the three-year government bond rate in the face of a mini-revolt by bond traders.</p>

<p>A few weeks back, some of the traders in Australia and elsewhere got it into their heads that big borrowing by governments would force up bond rates - a relationship that was once thought to be clear cut but hasn’t held for some time.</p>

<p>The traders sold government bonds issued by Australia and other nations, which in the case of the bond market, <a href="https://www.investopedia.com/articles/bonds/07/price_yield.asp">forces up the bond interest rate</a>.</p>

<p>Then other traders piled on, partly because economic outlooks are improving and they thought governments might soon be issuing fewer bonds, and partly because they thought other traders might agree with the traders.</p>

<p>That’s right: “thought other traders might agree with the traders”.</p>

<h2>Beauty contests can make markets mad</h2>

<p>In financial markets you don’t make money by correctly guessing what will happen, you make it by correctly guessing what other traders think will happen.</p>

<p>One of the founders of modern economics, John Maynard Keynes, described it as a beauty contest in which judges are rewarded not for picking the most beautiful face, but for picking the face <a href="https://www.zeninvestor.org/keynesian-beauty-contest/">other judges</a> will think is the most beautiful.</p>

<p>It’s like the rules in <a href="https://www.liveabout.com/family-feud-brief-overview-1396911">Family Feud</a>.</p>

<p>The yield on Australian Commonwealth 10-year bonds climbed from 0.98% at the start of the year to 1.11% a month later, to an extraordinary 1.87% a month after that - a near-doubling in a matter of weeks.</p>

<p>Even the yield on three-year bonds, which the Reserve Bank has pledged to keep at <a href="https://theconversation.com/5-ways-the-reserve-bank-is-going-to-bat-for-australia-like-never-before-149311">0.10%</a> crept up to 0.13%.</p>

<p>Last Friday, the Reserve Bank fought back.</p>

<p>It bought extra bonds a day after completing its usual purchases on Thursday.</p>

<p>This Tuesday, in its statement after its monthly board meeting, it added nine words to its usual acknowledgement that “<a href="https://www.rba.gov.au/media-releases/2021/mr-21-01">wage and price pressures remain subdued</a>”.</p>

<p>Those words were: “<a href="https://www.rba.gov.au/media-releases/2021/mr-21-03">and are expected to remain so for some years</a>”.</p>

<p>And then it released a <a href="https://www.rba.gov.au/mkt-operations/announcements/rba-purchases-of-government-securities-2021-03">separate statement</a> reiterating that when its A$100 billion program of buying $5 billion of government bonds each week expires in May it will launch another $100 billion program, taking the scheduled bond buying through to November.</p>

<p>Since the program began last November, the bank has bought $74 billion of bonds. Its message was that if traders thought it was within $26 billion of running out of ammunition, it had another $100 billion. It doubled <a href="https://www.youtube.com/watch?v=X-M8e1YYiQg">the size of its knife</a>.</p>

<p><strong>The bank can’t afford to lose</strong></p>

<p>Keeping control of rates is a fight the Reserve Bank has to win. When it announces a change in an interest rate, usually the <a href="https://rba.gov.au/statistics/cash-rate/">cash rate</a>, it uses words along the lines of “<a href="https://www.rba.gov.au/media-releases/2020/mr-20-06">the board decided to lower the cash rate</a>,” implying that it can.</p>

<p>The more accurate words it <a href="https://www.rba.gov.au/media-releases/2001/mr-01-17">used to use</a> were “the bank will be operating in the money market this morning to reduce the cash rate,” an admission that it could only try to move the cash rate, by trading in financial instruments.</p>

<p>So effective have its pronouncements become that in recent years it hasn’t needed to do much trading to move the cash rate - it has just announced the move knowing that traders will fall into line because it could buy or sell financial instruments if it wanted to.</p>

<p>If it loses a battle with traders over rates, what it says will have much less force.</p>

<p><strong>It has the resources it needs to win</strong></p>

<p>The bank will win whatever battle it chooses to fight because it has unlimited resources. Unlike traders, it can <a href="https://www.rba.gov.au/education/resources/explainers/unconventional-monetary-policy">create</a> as many Australian dollars as it needs in order to buy as many bonds as it needs.</p>

<p>So far it has chosen to defend its ground on the cash rate and the three-year bond rate. It wants both at 0.1%.</p>

<p>It said on Tuesday it would “not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range”.</p>

<p>It added that for that to occur, wage growth will have to be “materially higher”, which would require significant gains in employment and a return to a tight labour market.</p>

<p>And then the killer sentence, <a href="https://www.rba.gov.au/media-releases/2021/mr-21-03">the last</a>, aimed directly at the traders: “The Board does not expect these conditions to be met until 2024 at the earliest.”</p>

<p>Although it released the statement one day before Wednesday’s <a href="https://theconversation.com/gdp-is-v-shaped-but-not-yet-good-these-three-graphs-tell-the-story-156372">national accounts</a> that showed the economic recovery continuing, it would have been aware of what they were likely to show.</p>

<p>It remains resolute.<em><img alt="The Conversation" height="1" src="https://counter.theconversation.com/content/156410/count.gif?distributor=republish-lightbox-basic" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important" t1tcsswdv="" width="1"></em></p>

<p><em><span><a href="https://theconversation.com/profiles/richard-holden-118107">Richard Holden</a>, Professor of Economics, <a href="https://theconversation.com/institutions/unsw-1414">UNSW</a></span></em></p>

<p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/vital-signs-in-the-battle-over-interest-rates-itd-be-unwise-to-bet-against-the-rba-156410">original article</a>.</em></p>
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In the battle over interest rates, it'd be unwise to bet against the RBA: Richard Holden

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<p>Experts and economists are united in their view that the RBA will hold the cash rate this month, with only one prediction for any movements at all in 2021, according to the latest survey from Finder.com.au.</p>

<p>Tony Makin of Griffith University, believes the rate will increase this year due to the economic effects of the COVID-19 vaccination rollout.</p>

<p>“Global economic activity will pick up as countries are vaccinated. Given the expansion in money supplies, other things equal this will put upward pressure on inflation. Otherwise, macroeconomics textbooks need to be rewritten. </p>

<p>“At the same time, record-breaking levels of public debt worldwide will continue to exert upward pressure on bond yields," Makin said.</p>

<p>Shane Oliver from AMP Capital said that while the economy has recovered faster than expected, the RBA is still a long way away from meeting its inflation and employment goals. </p>

<p>“A rate hike is still a long way away. </p>

<p>“That said, the faster than expected recovery will likely see the first hike occur earlier than the RBA's expectation of ‘no increase before 2024’. It could come late next year or early 2023," Oliver said.</p>

<p>Positive sentiment around both housing affordability (3%) and cost of living (3%) reached the lowest level ever recorded since the Finder survey began in 2018.</p>

<p>Employment continued to be the highest indicator measured with 55% expressing positive sentiment, down from its record-high of 73% last month.</p>

<p>Positive sentiment around employment plummeted to 0% in April when the lockdowns first began, but the nation’s stronger-than-expected economic recovery has resulted in a rosier outlook for the job market. </p>
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Experts and economists are united in their view that the RBA will hold the cash rate this month, with only one prediction for any movements at all in 2021

Experts and economists forecast a cash rate lockdown until 2022

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<p><span style="line-height: 1.3em;">The RBA's cash rate was left unchanged at 2.00%, as expected. The post-meeting statement repeated much of the mantra of recent months, noting that a lower AUD was both 'likely and necessary' and that there are on-going concerns about Sydney's strong dwelling price rises. China and Greece barely rated a mention.</span></p>
<p><span style="line-height: 1.3em;"> The tone of the description of the local economy was slightly more positive, as they noted that the unemployment rate remained 'little changed recently'. There was no explicit guidance about the future path of monetary policy, with the RBA seemingly content to wait and watch and hope for a lower AUD. We expect the cash rate to be on hold in coming quarters.</span></p>
<p><span>Facts </span></p>
<p><span>- The cash rate was held steady at 2.00% (as expected by all 27 economists in the Bloomberg survey). The market was pricing a 10% chance of cut just prior to the announcement. </span></p>
<p><span>Implications </span></p>
<p><span>The RBA announcement and statement had few surprises with the statement providing no explicit guidance about the future path of monetary policy. The central bank was content to, once again, end its comments by stating the obvious, that: 'information on economic and financial conditions to be received over the period ahead will inform the Board's assessment of the outlook and hence whether the current stance of policy'. </span></p>
<p><span>Developments in Greece and the Chinese stock market barely rated a mention. Although the board is likely to have received a full briefing on both, the significant uncertainty about how the situations will play out and what they might mean for the macro-economy mean they are still part of the RBA's distribution of risks rather than part of any central forecast. </span></p>
<p><span>Having delivered 50bp of cuts in the first half, we expect the RBA to be quite patient as they wait and watch to see the impact of these cuts on the economy. It is also clear that the RBA is hoping that the AUD will fall further and that this will be mechanism which loosens financial conditions, rather than them needing to cut rates and potentially push Sydney housing prices even higher. </span></p>
<p><span>Recent falls in the AUD will no doubt be welcome, although today's statement suggests more falls are desired. Our own assessment is that the RBA would be more comfortable with the AUD around 68-70 US cents (currently 75 US cents). </span></p>
<p><em>Paul Bloxham is chief economist Australia and New Zealand for HSBC. </em></p>
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On hold, waiting for the AUD to fall more: HSBC's Paul Bloxham

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<p><span>GUEST OBSERVER</span></p>
<p><span>While many media outlets paint a rather bleak and uncertain future for the world economy, long-term bond yields in Australia finished 2016 higher than at any other point throughout the year.</span></p>
<p><span>This is even more impressive considering that the cash rate (which has a strong correlation with bond yields) was cut twice for a total of 50 basis points over 2016. Figure 1 shows how much long-term rates increased towards the end of last year and into 2017. Yields on 10-year Australian government bonds have increased by 74 basis points since September and nearly 100 points since the last interest rate cut in August. </span></p>
<p><span>Table 1 shows the difference between yields on 10-year government bonds and 90-day treasury bills in basis points (1 point = 0.01 percent). </span></p>
<p><span>This tells a similar story to the graph in Figure 1; a widening between short-term and long-term rates. The important point is that this widening from August until December last year is driven by an increase in long-term yields rather than a cut in short-term rates, as it was from July to August.</span></p>
<p> </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/16/Screen%20Shot%202017-02-16%20at%2012.31.05%20PM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="https://www.urban.com.au/images/2017/02/16/Screen%20Shot%202017-02-16%20at%2012.31.05%20PM.png" alt=""></span></p>
<p><span>Often if the yield curve becomes too inverted, the RBA is forced to cut short term rates to improve liquidity by incentivising banks and other institutions to lend out money. </span></p>
<p><span>An increase in long-term yields is a dream scenario for the Reserve Bank, as this is a signal of higher investor confidence and a better outlook for the Australian economy. </span></p>
<p><span>December was also the first month since September 2014 that the entire yield curve was positive (long term rates above medium, and medium term rates above short term). This is a sign that investors expect improving economic condition in the long run. It also shows investors’ belief that the economy will do well over the next few years.</span></p>
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<p><span>The ASX Cash Rate Futures market pegs the chances of a decrease in official cash rates at the next meeting (7th March) at 5 percent. While this may seem appropriately low, it does highlight that even with a rising yield curve, investors still believe an interest rate cut is more likely than a hike in 2017. </span></p>
<p class="p1"><span class="s1"><em>For more information from Secret Agent, </em><a href="https://secretagent.com.au/" target="_blank"><span class="s2"><em>click here</em></span></a><em>.</em></span></p>
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Rate cut more likely than hike in 2017: Secret Agent

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<p>GUEST OBSERVER</p>
<p>Slowly and calmly the RBA appears to be setting the scene for the possibility of cash rate rises.</p>
<p>There is clearly no urgency, but the central bank will want to keep its options open. Keep in mind, unlike many other central banks, the RBA does not give explicit forward guidance (that is, it does not indicate cash rate movements ahead of time). Instead, the commentary will just gradually shift to greater optimism about growth and inflation before the first hike is delivered.</p>
<p>Two speeches by RBA officials this month both suggested a mild shift in tone. Assistant Governor, Luci Ellis, gave a speech making it clear that global growth is picking up and that the recovery was expected to persist.</p>
<p>A day later, Governor Phil Lowe, gave a speech entitled, ‘The Next Chapter’, in which he explained that the mining cycle, which has dominated the local growth story in recent years, is almost done. Although Dr. Lowe was cautious, he was generally positive about the outlook, with Australia set to benefit from rising Asian middle class incomes.</p>
<p>At the same time, the timely local growth indicators remain strong. Surveyed business conditions are around decade highs and job creation has accelerated to its fastest pace since 2000 over the past six months. The fast pace of job creation is expected to continue, given the marked improvement in job advertisements, job vacancies, and surveyed employment intentions.</p>
<p>Exports are also set to be strong in H2, partly reflecting a bounce-back in coal shipments after weather-related disruptions in H1. In addition, infrastructure investment is ramping up. We are sticking by our call that GDP growth will pick-up to 3.3% y-o-y by the Q3 print, which is due in early December.</p>
<p>The challenge remains as to whether this lift in growth and employment will deliver a pick-up in wages growth and inflation. The next CPI print, which is due to be published on 25 October, will be the next key number on this front. We expect the RBA to be firmly on hold next week as it awaits the next inflation print.</p>
<p>On fixed income strategy, the risk that the RBA hikes sooner argues for elevated money market risk premium but curves should flatten, especially beyond 10 years. </p>
<p>Rising activity and strong jobs growth </p>
<p>Growth is picking up pace, driven by a collection of factors. First, the sharp decline in mining investment is coming to its end: less drag from this source is net positive for growth. Second, growth in services exports remains solid, LNG exports are ramping up, as new capacity comes on-line and coal exports are bouncing back after weather-related disruptions in H1.</p>
<p>Third, infrastructure investment is ramping up, led by urban road and rail projects, mainly in the south- eastern states. Finally, corporate profitability has improved, partly due to higher commodity prices, which is supporting a lift in surveyed business investment intentions.</p>
<p>The pick-up in growth is being reflected in strong surveyed business conditions, which have been around decade-highs in recent months (Chart 1). The lift in growth is also driving a strong pick-up in hiring, with job creation running at its fastest pace in 17 years over the past six months. Most of the jobs that have been created have also been full-time positions (Chart 2).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.03.44%20AM.png" target="_blank">Click to enlarge</a></p>
<p> <img src="https://www.urban.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.03.44%20AM.png" alt=""></p>
<p>The timely indicators, such as job advertisements and employment intentions, suggest jobs growth should continue in the coming months.</p>
<p>Wages growth is subdued, but for how long?</p>
<p>The challenge has been that, as yet, the improvement in the labour market has not driven a rise in wages growth (Chart 3). However, the wage price index has started to stabilise. Part of the explanation for weak wages growth may be factors that are also affecting other economies, such as: the changing nature of work due to technology; the continued effect of globalisation and offshoring; increased casualization of the workforce, and decreased unionisation (for more on these factors see Global Economics Quarterly: The Wage Conundrum, 22 June 2017). Much like in other countries, Australia’s Phillips curve – which suggests an inverse relationship between wages and unemployment – appears to have flattened (Chart 4).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.04.52%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.04.52%20AM.png" alt=""></p>
<p>However, in Australia’s case there may also be some idiosyncratic factors at play. In particular, the large fall in commodity prices from 2011 to 2016 weighed on national incomes, which, in turn, flowed through to weak growth in unit labour costs (Chart 5). If this explains even some part of the slowdown in wages growth then the recent lift in commodity prices and boost to mining sector profitability should flow through to some lift in wages growth. The rise in profitability has also moved beyond the mining industry, which should also imply a pick-up in wages growth over time (see Downunder Digest; Show me the money, 20 April 2017).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.08.07%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.08.07%20AM.png" alt=""></p>
<p>Next focus will be on the quarterly CPI print, as always</p>
<p>As is often the case, the October board meeting is expected to be rather dull, as it is only three weeks until we receive the all-important quarterly CPI print. The RBA is likely to flag that it is awaiting more information of prices to help firm up its view on how the economy is travelling.</p>
<p>The key will be the underlying measures of inflation – the trimmed mean and weighted median. These have already been showing a modest lift from the very low levels reached in mid-2016, when the RBA was forced to cut the cash rate to its current record low (Charts 7 and 8). Even a repeat of a modest print for the trimmed mean, of 0.5% q-o-q, would see underlying inflation back in the RBA’s 2-3% target band on a y-o-y basis. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.09.31%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.09.31%20AM.png" alt=""></p>
<p>RBA speeches and commentary </p>
<p>As we reported last month, Governor Phil Lowe explicitly stated at a parliamentary testimony in August that it would be reasonable to assume that the ‘next rate move will be up rather than down’. This month brought another mild shift in tone from the RBA. Assistant Governor Luci Ellis gave a speech making it clear that the RBA expects the current recovery in global growth to continue. Governor Lowe then gave a speech suggest that Australia’s growth story is moving on to its ‘next chapter’, most of which was upbeat about Australia’s growth prospects while still acknowledging risks, such as Australia’s high household debt levels.</p>
<p>Governor Lowe has also been cautious about giving any indications on timing of any cash rate rise. He has noted repeatedly that it will be ‘some time’ before rates rise. We see this as typical RBA style. The RBA does not give explicit forward guidance. Instead it shifts the tone of its discussion about the outlook for growth and inflation and leaves it to the market to determine what it might mean for the cash rate setting.</p>
<p>Fixed income strategy: Earlier hikes equal flatter curves</p>
<p>We hold on to our flattening bias. Recent upbeat communication from the RBA implies a bold reaction function. As a result, and assuming the data holds up as our economists expect, investors should consider February and May meetings as ‘live’ (currently just 6bp and 16bp of cumulative hikes priced, respectively). The sticky pricing of a risk premium into the money market should keep 3yr government bond yields elevated with the potential to re-test the top of the 1.92-2.22% Q3 range (Chart 9).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.11.17%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/09/29/Screen%20Shot%202017-09-29%20at%2011.11.17%20AM.png" alt=""></p>
<p>Yet, we are less concerned about a breakout at the long-end. In our view, 10yr yields close to the recent high of c.2.9% present a bullish signal given that level is consistent with 5yr5yr peaking around 3.5%, equal to neutral rate estimates. Also, the historic tendency for the curve to flatten sharply as the RBA hikes should be expected to repeat, especially given the rise in household’s leverage (see Little to fear for the long-end, 30 August). The potential for the curve to flatten is greatest beyond 10 years, where supply is supportive and the curve is steep, particularly vs. those markets that have already hiked rates (Chart 10). </p>
<p><a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC.</p>
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RBA on hold this month, waiting for Q3 CPI: Paul Bloxham

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<p><strong>EXPERT OBSERVER</strong></p>

<p>The Reserve Bank (RBA) has left the target rates for both the cash rate and 3-year government bond yield at 0.10 per cent. The RBA will purchase an additional $100 billion of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid-April.<br>
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<h2>What has changed since the last RBA Board meeting on December 1?</h2>

<p>• Joe Biden was sworn in as the 46th US President.</p>

<p>• ANZ job advertisements rose by 2.3 per cent in January to 161,582 available positions. Ads have lifted for eight successive months to be up 5.3 per cent from a year ago.</p>

<p>• Employment rose by 50,000 in December after increasing by 90,000 jobs in November. Full-time jobs rose by 35,700 and part-time jobs rose by 14,300. The unemployment rate fell from 6.8 per cent to 6.6 per cent in December.</p>

<p>• Preliminary retail trade fell 4.2 per cent in December (9.4 per cent annual) after rising 7.1 per cent in November.</p>

<p>• The weekly ANZ-Roy Morgan consumer confidence rating rose to a 15-month high.</p>

<p>• The NAB business confidence index fell from a 31-month high of +12.7 points to +4.5 points in December. But the business conditions index lifted from +7.0 points to 28-month highs of +14.2 points.</p>

<p>• The International Monetary Fund expects the global economy to expand by 5.5 per cent in 2021, which is 0.3 percentage points higher than the October 2020 forecast.</p>

<p>• The Consumer Price Index rose by 0.9 per cent in the December quarter to be up by 0.9 per cent on the year. The trimmed mean (underlying) measure rose 0.4 per cent in the quarter to be up 1.2 per cent on the year.</p>

<p>• Private sector credit (effectively outstanding loans) rose by 0.3 per cent in December to be up 1.8 per cent over the year.</p>

<p>• In the full twelve months to December the underlying Commonwealth Government cash balance was $186,120 million (9.5 per cent of GDP). The budget deficit for the six months to December was $9.5 billion lower than the ‘profile’ deficit.</p>

<p>• A retail trading frenzy for highly shorted stocks led to volatility on global sharemarkets and spilled over into the silver market.</p>

<p>• The Aussie dollar has lifted from US73-74 cents to US75-77 cents.</p>

<h2>The Assessment</h2>

<p>The Reserve Bank Board is not expecting to increase the cash rate until 2024 “at the earliest”. The first Tuesday in the month will never be the same.</p>

<p><img alt="" height="436" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/screen_shot_2021-02-02_at_3.16.43_pm.png" width="620"></p>

<h2>Perspectives on interest rates</h2>

<p>The Reserve Bank left the cash rate at 0.10 per cent after cutting the rate from 0.25 per cent on November 3. The RBA previously cut the cash rate on March 3 and March 19, 2020, each by 25 basis points. The target rate for 3-year bond yields was left at 0.10 per cent.</p>

<p>On November 3 the RBA cut the 3-year bond target from 0.25 per cent to 0.10 per cent. The RBA implemented the 0.25 per cent target rate for 3-year bond yields on March 19, 2020. There have been 18 cash rate cuts since November 2011 with the cash rate cut from 4.75 per cent. Previously cash rates rose seven times from October 2009 to November 2010 from 3.00 per cent to 4.75 per cent.</p>

<h2>What are the implications of RBA's decision?</h2>

<p>• The Reserve Bank used the word, “strong”, five times in the statement. The economic recovery, employment and retail spending were all described as “strong”.</p>

<p>• The Reserve Bank Governor will go into more depth about the economic recovery in a speech tomorrow. Further, Governor Lowe gives testimony to the House of Representatives Economics Committee on Friday. On the same day the RBA issues the quarterly Statement on Monetary Policy that includes the latest forecasts. We received some inkling of the forecasts today: “In underlying terms, inflation is expected to be 11⁄4 per cent over 2021 and 11⁄2 per cent over 2022.”; “the central scenario is for unemployment to be around 6 per cent at the end of this year and 51⁄2 per cent at the end of 2022.”; the central scenario being for GDP to grow by 31⁄2 per cent over both 2021 and 2022.</p>

<p>• The Reserve Bank Board’s central scenario requires significant job gains and a return to a tight labour market to stoke inflation. And that is not expected until 2024 at the earliest.</p>
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The RBA has left the target rates for both the cash rate and 3-year government bond yield at 0.10 per cent, with an increase not expected until 2024 "at the earliest"

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RBA interest rates - Set the watch for 2024: CommSec's Craig James

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<p>EXPERT OBSERVER</p>
<div>A double-shot Friday, with speeches from both Reserve Bank Governor Lowe and Assistant Governor Luci Ellis.</div>
<div> </div>
<div>Lowe's speech effectively confirmed that the inflation target is asymmetric.</div>
<div> </div>
<div>Although 'committed' to the 2 to 3 per cent inflation target, the next move in interest rates will be up, he noted, even though inflation is yet again set to fall below the target.<br><br>As energy and fuel price pressures ease the rate of inflation will likely drop over the second half of the year.<br><br>That's good to the extent that it eases pressure on household budgets, of course.<br><br>But, in the spirit of Mr. Micawber, it is hoped that eventually inflation will pick up again.<br><br>Amazon might have something to say about that as retail price deflation again rears its head.<br><br><strong>Rates on hold</strong>
</div>
<div> </div>
<div>Whether you agree or otherwise, at least it's been made clear: the cash rate is going to be set at 1.5 per cent for a long time!<br><br>Probably a very long time.</div>
<div> </div>
<div>Lowe also delivered an interesting interpretation of housing credit dynamics, noting that the slowing of the housing market had reduced demand for credit by investors, in doing so citing low mortgage rates as evidence that the reduced supply of credit has not been the main story.</div>
<div> </div>
<div>The plural of anecdote is not data, but that's not quite the feedback we've been getting from mortgage brokers. </div>
<div> </div>
<div>Semantics, maybe, given the reflexive nature of such things.</div>
<div> </div>
<div><strong>Luci on lags</strong></div>
<div> </div>
<div>Assistant Governor Ellis also presented an interesting speech on lags, showing how the unemployment rate has been improving (if not very much for the long term unemployed).</div>
<div> </div>
<div>No arguments there, although building permits are now falling away outside Melbourne (OK, and Hobart), while money growth is now at the lowest level in more than a quarter of a century. </div>
<div> </div>
<div>If those weak leading indicators persist, then eventually the economy will start to slow too...yes, it's those pesky lags again!</div>
<div> </div>
<div>Maybe that's already happening, according to the timeliest business surveys.</div>
<div> </div>
<div>The labour force figures released this week also showed that the growth in hours worked is already on the way down. </div>
<p> </p>
<div><a href="https://3.bp.blogspot.com/-kDmz34Ipxs0/W3dJwWlfd7I/AAAAAAAArlU/3SWaE5U_PZwsGrTrZ21uEB5LO6qLF99oACLcBGAs/s1600/a1.jpg"><img src="https://3.bp.blogspot.com/-kDmz34Ipxs0/W3dJwWlfd7I/AAAAAAAArlU/3SWaE5U_PZwsGrTrZ21uEB5LO6qLF99oACLcBGAs/s640/a1.jpg" width="640" height="378" data-original-height="795" data-original-width="1342"></a></div>
<p>Long story short, inflation is low because the economy remains well below its full capacity.</p>
<div><em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em></div>
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