The RBA has held the official cash rate steady at a record low of 0.1% and doesn’t expect it to rise before 2024, despite a growing number of economists predicting an earlier hike.

The RBA has held the cash rate at a record low 0.1% but announced changes to other key policy measures. Picture: Getty.

In its July meeting, the RBA board confirmed it would begin winding back other key policy measures that were put in place at the height of the pandemic, while noting the pandemic still poses risks to the economic recovery.

“One near-term uncertainty is the effect of the recent virus outbreaks and the lockdowns,” RBA Governor Philip Lowe said in a statement after the board’s monthly meeting.

“But the experience to date has been that once outbreaks are contained and restrictions are eased, the economy bounces back quickly,” he added.

Despite a stronger-than-expected recovery in the jobs market and reports of labour shortages, Mr Lowe said inflation and wages growth remain subdued.

“The Board remains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2-3% target range,” he said.

“The Bank’s central scenario for the economy is that this condition will not be met before 2024”.

But several leading economists expect the first interest rate rise will occur much sooner.

Economists at Westpac, ANZ and AMP are predicting rates will begin rising in 2023.

The earliest predictions come from the Commonwealth Bank, with economists tipping the first rate hike will occur in November 2022 as government stimulus and fewer overseas workers boost jobs and wages.

Other policy measures to ease slightly

While the official cash rate remains on hold for now, the RBA will begin to wind back some emergency policy settings it implemented during COVID-19, which have helped to keep borrowing costs low and support the economy.

The RBA will scale back the next stage of its bond buying program from September, with bonds to be purchased at a rate of $4 billion a week until at least mid-November, down from $5 billion a week currently.

It will also maintain the April 2024 target for its yield curve control program, rather than rather than extend it to November 2024.

“These measures will provide the continuing monetary support that the economy needs as it transitions from the recovery phase to the expansion phase,” Mr Lowe said.

REA Group economist Paul Ryan said, to some extent, the yield curve target ties the RBA’s hands on when interest rates can rise.

“The RBA is focused on the credibility of its forward guidance,” Mr Ryan said.

“Not expanding yield curve control until late in 2024 means they aren’t certain that interest rates will remain unchanged until that point.”

Mr Lowe acknowledged the impact low interest rates are having on the housing market, reiterating financial regulators will monitor for trends of risky lending.

“Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,” he said.

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