The rapidly escalating housing boom hasn’t stopped the RBA from keeping the official cash rate on hold for another month.
In fact, even though there are concerns about the soaring house prices, interest rates are unlikely to be lifted from their record low of 0.1 per cent for the foreseeable future, or at least until we see some meaningful rise in wages.
HSBC chief economist spoke to Domain about the Reserve Bank’s reluctance to move on rates.
“They can see how low interest rates are feeding into the economy in a number of different ways in lowering the cost of people’s mortgages and giving them more disposable income,” he said.
“But the RBA is fairly unconcerned about the pick-up in the housing market as they see the housing mechanisms as one of the ways they are supporting the economy.
“The governor has said before that we’ve had a four-year pause in national housing prices, so they’re comfortable if they rise even further from here.”
The RBA a short time ago forecast rates to stay put for around three years, but a sharp rise in bond yields has prompted a sell-off in global equity markets and that prediction now looks more doubtful.
One person who doubts that prediction is Rich Harvey from Propertybuyer.com.au.
“The interest rate will be put up sooner than the late 2023 they indicated,” he told Domain.
“The long-term bond yield has started to pick up and is having an effect on the economy.”
“The economy is picking up more quickly than everyone expected, there’s a lot of optimism around and the vaccine is now being rolled out. The RBA may have to adjust its thinking before too long.”
With consumer sentiment rising, the RBA expects the economy to grow by 3.5 per cent in 2020 and 2021.