RBA releases minutes as world counts hours to war


The RBA has stoically sat tight on official interest rates since November 2020 and it seems only war or another pandemic variation can shake their commitment to sitting tight for a while longer yet.

The Reserve Bank of Australia (RBA) has not lifted interest rates for 135 months, or more than 11 years, and in doing so has further cemented its international record for the length of time a major central bank had gone without a raise.

In keeping the official cash rate at 0.1 per cent for a fifteenth consecutive month, it may look like the burghers of the RBA are on autopilot.

But the decision on 1 February to hold rates steady yet again took more than 4,000 words of RBA Monetary Policy Meeting Minutes (published on 15 February) to be reached.

Inflation that is still not persistently in the 2 to 3 per cent target band and wages that remain largely stagnant ensured the RBA Board erred on the side of patience.

Unless war erupts in Ukraine drawing Russia and the west into extended conflict and a trade freeze, the Board seems determined to ignore soaring house and rent prices and hold rate steady for at least another six months.

“While inflation had picked up, members agreed it was too early to conclude that it was sustainably within the target band,” the minutes released on Tuesday noted.

“There were uncertainties about how persistent the pick-up in inflation would be as supply-side problems were resolved.

“Wages growth also remained modest and it was likely to be some time before aggregate wages growth would be at a rate consistent with inflation being sustainably at target.

“The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.”.

War and words

The great unknown is outside the control of the RBA and beyond reach of Australian Government policy.

If Ukraine was to be attacked by Russia, as the US’ Biden administration insists is inevitable and imminent, global energy prices would soar and supply of a third of the world’s wheat and barley and a quarter of corn exports would likely cease.

The resultant inflation on a global scale could force the RBA’s hand.

China’s refusal to criticise or challenge Russia is even fuelling speculation that the distraction in Europe could lead to action against Taiwan, which, although at longer odds, would wreak absolute havoc with the RBA’s 4,204 carefully crafted and nuanced words.

The minutes noted the unemployment rate was at its lowest level since 2008 and underlying inflation was in the middle of the two to three per cent target range for the first time since 2014.

“Since November 2021, better-than-expected progress towards the Board’s goals had been made … and the achievement of the goals was within sight for the first time in several years,” the minutes noted.

The RBA didn’t name names when it came to the prospect of international conflict but did hint at the downside risks presented by “the complexity of medium-term policy challenges in China” and the “increase in geopolitical tensions.”

Even as Australia prepares to open its international borders on 21 February, the RBA was still more fixated on COVID than conflict.

The pandemic continued to be the main source of uncertainty surrounding the outlook for economic activity, it said.

“In considering the policy decision, members observed that the recent Omicron outbreak of COVID-19 had affected the economy but had not derailed the recovery.

“The Australian economy was resilient and spending was expected to pick up as case numbers trended lower.

“The economic outlook was being supported by household and business balance sheets that remain in generally good shape, strong business investment, a large pipeline of construction work and accommodative macroeconomic policy settings.”

The relatively positive outlook was behind the Board’s decision to end monetary support (or ‘printing money’) through its bond buying program this month.

Despite soaring petrol prices, property prices and the prospect of interest rates rising beyond the current round of bank rates hikes, consumer confidence remains high

More Australians are borrowing more money at higher levels of debt to income than ever before, with new home loan commitments hitting a record high in December 2021.

Undeterred, the public have pushed the latest ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – up by 3.3 per cent to 101.3, its biggest weekly gain since April 2021.

Banks go it alone

The banks and lenders aren’t waiting for the RBA to move on rates.

Twenty-three providers increased 639 fixed rates by an average of 0.25 per cent in the past week alone.

According to Canstar, the average variable interest rate for owner occupiers paying principal and interest is 3.02 per cent and the lowest variable rate is 1.77 per cent for 60 per cent loan-to-value ratio (LVR) and the same for 80 per cent LVR.

The average variable interest rate for investors paying principal and interest is now up to 3.36 per cent and the lowest rate is 1.99 per cent for 60 per cent LVR or 2.09 per cent for 80 per cent LVR.

Among the big banks this week, Westpac increased their 1–5-year Fixed Options P&I residential home loan rates, and 2–5-year Investment Fixed rates by an average of 0.15 per cent. ANZ increased their 1–5-year Investment Fixed rates by an average of 0.26 per cent.

Savings rates are still failing to match inflation. The average 1-year term deposit rate is 0.51 per cent and the maximum rate is 1.12 per cent.


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