The RBA has announced that the cash rate will remain on hold at 0.1%.
Governor Philip Lowe stated in his February address:
“The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently.”
“This will require significant gains in employment and a return to a tight labour market. The board does not expect these conditions to be met until 2024 at the earliest.”
But isn’t the Australian economy looking up?
As David Taylor outlines in Why the Australian dollar is rising the Australian economy seems to be heading out of recession.
Over February the Aussie dollar gained 5 cents against the US dollar. Some of the factors driving this appreciation are as follows:
- Iron ore (Australia's biggest export commodity) has increased in value from $90 US/tonne this time last year to $170 US/tonne.
- The roll out of the COVID-19 vaccine creating confidence within the business and consumer sectors.
- Australia’s falling unemployment rate.
This matters if you’ve been eyeing off those super low interest rates
A rise in the value of the Aussie dollar signifies that the economy is headed out of recession, which in turn encourages overseas investment.
This has created market speculation that interest rates could rise sooner than anticipated by the RBA.
While this appears to be good news for the Australian economy, it may not be such great news for your home loan, especially if you’re waiting until the very last minute to get that 3 year fixed rate loan.
Because three year fixed rates are impacted by changes in the rate of the three-year government bond, and the Reserve Bank's Term Funding Facility which could run out by the end of June.
But will the rising dollar impact the cash rate?
The simple answer is - it’s too early to tell.
Bill Evans, Chief Economist for Westpac interpreted the RBA’s decision as being inline with the theme of “not getting carried away” with the better than expected performance of the economy.
What should you be thinking about when it comes to your home loan?
With the market outlook largely uncertain on the future of the cash rate, you may be running out of time to take advantage of historically low interest rates. So you could be saving yourself money (and some regret) by acting now.
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1. David Plank as cited in Why the Australian dollar is rising, Taylor, 2021, ABC News2. David Plank as cited in Why the Australian dollar is rising, Taylor, 2021, ABC News3. Bill Evans as cited in RBA nails 0.1pc cash rate until 2024, Cranston, 2021, Financial ReviewPhoto credit: Forex Blog