RBA holds cash rate at record low of 0.1%

The Reserve Bank has left the cash rate unchanged as expected after its monthly board meeting for November took place today.

“At its meeting today, the board decided to maintain the cash rate target at 10 basis points and the interest rate on exchange settlement balances at 0%,” RBA governor Philip Lowe said in a statement.

The official cash rate has been set at a record low of 0.1% since November last year, making today the 11th consecutive meeting where the RBA has not changed the rate.

The RBA also announced it will continue to purchase government securities at the rate of $4 billion a week until mid-February next year and retire the target of 10 basis points for the April 2024 Australian government bond.

Economists were keenly following the RBA board’s decision today because they expected the central bank to update its guidance of no cash rate rises until 2024 in light of recent inflationary pressures.

Signs of inflation largely driven by increases in fuel prices and new home purchasing costs pushed core inflation to 2.1% in the September quarter which is just within the RBA’s target range of 2% to 3%.

Despite signs of inflation, Lowe reaffirmed the RBA’s commitment to see inflation “sustainably” within the 2% to 3% target range before it acts on rates.

“This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time,” Lowe said.

The central bank forecasts underlying inflation to reach about 2.5% by the end of 2023 and only a gradual increase in wages growth.

“Wages growth is expected to pick up gradually as the labour market tightens, with the Wage Price Index forecast to increase by 2.5% over 2022 and 3% over 2023,” Lowe said.

Commenting on the RBA’s decision, chief economist at CreditorWatch Harley Dale said the central bank is “under the pump” as the potential of earlier-than-expected interest rate rises grows.

“Market interest rates will rise in the interim, or so everybody expects,” Dale said.

“As economic conditions move in a way that is sometimes evolving and sometimes revolutionising, the RBA is sticking to its record low interest rate policy,” he added.

In December, the RBA will issue its final statement before February next year, which Dale said is poised to be the most important meeting of the year.

“The December statement will be a key update given the bank will have had the opportunity to scrutinise an increasing amount of information regarding post-lockdown economic outcomes,” he said.