For the ninth consecutive month, the Reserve Bank of Australia maintained the historic low cash rates of 0.1% for its customers.
CreditorWatch chief economist Harley Dale stated that it is unlikely that the RBA will make any changes in cash rates in the near term due to seemingly endless lockdowns.
Dale stated that the lockdown would cause business uncertainty for the duration, which would be the “biggest foe.”
“Complementary RBA policies to maintain downward pressure on borrowing costs will also persist,” Mr Dale said.
“This is vital to businesses, especially small and medium-sized enterprises (SMEs) which are disproportionately affected by the current economic conditions.”
He also pointed out that economic conditions would eventually be favorable for a solid recovery.
“All industries should have a strategy in order to seize the opportunities.”
“That seems a long way off right now but it will happen and businesses will do well to be prepared.”
Housing market impact
Jasmin Argyrou is Credit Suisse portfolio manager and director. She stated in a recent interview that low interest rates have increased the demand for loans from owners-occupiers and investors.
“It is a chaotic marketplace, no matter how you look at growth rates or new lending levels. The demand has exploded,” Ms. Argyrou said.
The dual-speed economy is created by the rise in housing prices and increased lending.
Ms. Argyrou stated, “House prices are likely to keep rising with gains only being interrupted by lockdowns.”
“They have had an effect on housing demand and the house price appreciation trend. However, I don’t think they have reversed it. She stated, “And I don’t believe it’ll stop it.”
RBA Governor Philip Lowe acknowledged the continued growth in house prices and financing demand from owner-occupiers and investors.
He stated that “Given rising prices for housing and low interest rates environments, the Bank monitors tendencies in housing borrowing closely. It’s important that lending standards are maintained.”
Delta disrupts economic recovery
Lowe claimed that Australia’s economy was in good condition before the Delta epidemic. In reality, Australia’s gross domestic product grew by 0.7% during the June quarter and almost 10% throughout the year.
He indicated that the September quarter GDP was expected to fall significantly while the unemployment rate would rise over the next few weeks.
“The epidemic is affecting all areas of the economy but its effects are uneven. While some areas are experiencing very difficult circumstances, others are continuing to grow.
Lowe said that the setback is temporary. However, Lowe admitted that the timing of the rebound is still uncertain.
“Much will depend on the health situation and the ease with which activity restrictions are lifted. According to him, the central scenario would see an economy that grows in the December quarter and returns to pre-Delta levels in the second half of next year.
Lowe indicated that the RBA Board will likely continue the cash rate until the target for employment and labor is met.
This is the central scenario for the economy. It’s unlikely that this condition will be met by 2024. For this to happen, the labour market must not be as tight than it is now in order to generate wage growth that is substantially higher than what it is currently. He stated.