Reserve Bank of Australia consecutive rate hikes to combat inflation

The Reserve Bank of Australia has put up the cash rate from 0.1% to 1.85% in 4 consecutive hikes to combat inflation. The inflation rate of 6.1% is the highest since the early 1990s. RBA expects inflation to peak at the end of the year and then decline to 2-3%.

What does this mean for interest rates?

There will likely be more rate rises over the months ahead. NAB expects the cash rate target to reach 2.85% by Dec 2022. The banks are likely to pass on all rate hikes in-full to customers. So, keep in mind that by the end of the year, there may be an additional 1% increase in interest rates to your variable loans.

Source: Reserve Bank of Australia

RBA September 2020 Decision - Interest Rates Held

Interest rates have been maintained at 0.25%. However, we may need to watch out in the future according to this article by Anastasia Santoreneos for Yahoo Finance:

More than half of experts and economists surveyed by Finder believe banks will increase variable home loan rates next year, despite the Reserve Bank of Australia predicting the official cash rate to remain at 0.25 per cent for the foreseeable future.

When asked when Aussies could expect banks to make the move, half of the respondents said banks were likely to announce out-of-cycle rate hikes during the first half of 2021. 

Why?

“Banking profits have nosedived off the back of billions of dollars worth of loan deferrals, a shrinking pool of first-time buyers, low-interest rates and minimal credit growth,” said Finder insights manager Graham Cooke.

They may then put up rates to cover more of their costs. If you haven’t thought about fixing part or all of your loan yet, I’d consider it.

RBA August 2020 Decision - Interest Rates Maintained

Once again interest rates in Australia have been maintained at 0.25%. Although Victoria is going through a tough time with the coronavirus, the RBA aren’t cutting rates any further. According to this article by Gareth Hutchens for ABC News:

Last month, Reserve Bank governor Philip Lowe raised the prospect of cutting rates further if necessary, perhaps to 0.1 per cent, but the board held off on taking further action at today's meeting.

Interesting, however, I haven’t seen this reported before and there’s no mention of any of this kind of thinking in Philip Lowe’s official statement last month or this month. He acknowledges the impact that coronavirus is having on the Victorian economy and that the Australian economy is “experiencing the biggest contraction since the 1930s” but points out that “the downturn is not as severe as earlier expected and a recovery is now underway in most of Australia”.

Since action wasn’t taken this month even amongst the startling number of cases in Victoria over the past week, it seems unlikely that rates will be cut any further. But who knows what to expect? Six weeks ago the situation was looking so much better on the coronavirus front.

National Auction Results July 25th 2020

The following auction results around Australia were reported by Domain on the 25th of July.

Sydney 64%

Melbourne 45%

Adelaide 67%

Brisbane 52%

Canberra 89%

Auction results took a hit on in all states except for Brisbane which was steady. Sydney only slipped down 1% compared to the month before. The virus numbers and lockdown in Melbourne must have contributed to its poor result - it is down 15% from a previous 60%. Adelaide is down 5% while Canberra is down 16% but from a very high result of 89% last month.

RBA July 2020 Decision - Interest Rates Maintained

Interest rates in Australia have been maintained at 0.25%. The Reserve Bank stated:

At its meeting today, the Board decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points.

They go on to illustrate the difficult time the economy has been going through:

The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. Since March, an unprecedented 800,000 people have lost their jobs, with many others retaining their job only because of government and other support programs.

They say their actions are helping:

The substantial, coordinated and unprecedented easing of fiscal and monetary policy in Australia is helping the economy through this difficult period. It is likely that fiscal and monetary support will be required for some time.

And allude that they aren’t increasing rates anytime soon.

The Board is committed to do what it can to support jobs, incomes and businesses and to make sure that Australia is well placed for the recovery. Its actions are keeping funding costs low and supporting the supply of credit to households and businesses. This accommodative approach will be maintained as long as it is required. The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.

There’s no mention about lowering rates and it’s unlikely they’ll do so based on their past signals.